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Year 2- 32% depreciated Would this procedure be more appropriate for projects with very long or short lives? Explain. The payback’s reciprocal would be more useful for projects with very long lives. The payback reciprocal is best used when the useful life of an investment is twice the payback period. The IRR rises when the useful life of an investment increase which would then get closer to the higher reciprocal.

EPPM3644 KEWANGAN KORPORAT DAN PENSTRUKTURAN SET: 3 REPORT OF CASE STUDY: CASE 19 WORLDWIDE PAPER COMPANY PROFESSOR: DR. LIZA MARWATI BINTI MOHD YUSOFF GROUP MEMBERS: LOH CHAI LING A140178 GOH HOOI SAN A139708 KERK (KEH) YIH JEN A139574 SEMESTER 2, 2013/2014 INTRODUCTION In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. Two primary benefits for this new addition include eliminating the need to purchase shortwood from an outside supplier and creating an opportunity to sell shortwood on the open market. Also, the new woodward would reduce operating costs and increase revenues. Blue Ridge Mill currently purchased

DeVry University Accounting 460 Professor: Ivy Bennett Group: B Veronica Guajardo Annie Lee Isolina Pagan Cost Benefit Analysis VIA Consulting has been hired in CanGo’s behalf to assist its management group in the decision making of the implementation of the new operating ASRS system, and we came out with the following financial information and data. CanGo started

Cost of new plant and equipment: 7,900,000 Shipping and installation cost: 100,000 Initial working capital required to start the production: 100,000 8,100,000 The initial outlay for this project is $8,100,000 Cash flow diagram $3,956,000 $8,416,000 $10,900,000 $8,548,000 $5,980,400 ($8,100,000) Net Present Value and Internal Rate of Return Unit Price x units sold 1:$21,000 2:$36,000 3:$42,000 4:$24,000 5:$15,600 Therefore, NPV = $94,575.83 NPV Values for Years 1: $18,260.90 2: $27,221.17 3: $27,615.68 4: $13,722.40 5: $7,755.98 The Internal Rate of Return (IRR) = 12.61% Project Conclusion Deciding on whether to follow through with a project is done by evaluating either the internal rate of return or net present value. According to Investopedia, “All other things being equal, using internal rate of return (IRR) and net present value (NPV) measurements to evaluate

Answer no: - 2 (i) Definition of Payback: - Payback period is the time taken by the project to return the initial investment back to the investor. How long investor needs to wait to get his investment back.

The team also chose to calculate IRR as another method of evaluating the Super Project. Again

Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).

a) Test-market expenses? b) Overhead expenses? c) Erosion of Jell-O contribution margin? d) Allocation of charges for the use of excess A project may have more than one IRR, especially when returns of an investment yield negative cash flows following positive cash flows.

A target payback period will be set by the company and the proposals that recover their initial cost within this time will be acceptable. If a comparison is made between two or more options then the choice will be project with the fastest payback.

The use of an accounting rate of return also underscores a project 's true future profitability because returns are calculated from accounting statements that list items at book or historical values and are, thus, backward-looking. According to the ARR, cash flows are positive due to the way the return has been tabulated with regard to returns on funds employed. The Payback Period technique also reflects that the project is positive and that initial expenses will be retrieved in approximately 7 years. However, the Payback method treats all cash flows as if they are received in the same period, i.e. cash flows in period 2 are treated the same as cash flows received in period 8. Clearly, it ignores the time value of money and is not the best method employed. Conversely, the IRR and NPV methods reflect that The Super Project is unattractive. IRR calculated is less then the 10% cost of capital (tax tabulated was 48%). NPV calculations were also negative. We accept the NPV method as the optimal capital budgeting technique and use its outcome to provide the overall evidence for our final decision on The Super Project. In this case IRR provided the same rejection result; therefore, it too proved its usefulness. Despite that, IRR is not the most favorable method because it can provide false results in the case where multiple negative

Internal rate of return (IRR) and Payback period “IRR of a project provides useful information regarding the sensitivity of the project’s NPV to errors in the estimate of its cost of capital” (Pierson et al.2011, pp.157).This proposal also shows the project is profitable by using Excel to get the IRR of 18.9%, which is

There are several traditional methods that can be used in appraising investment decisions. For instance, the net present value method (NPV) which entails estimating the costs and revenues of a project and discounting these figures to get their present values. Projects with the biggest positive net present value are the ones chosen as they represent the best stream of benefits of investing in the project over and above recovering the cost of initiating the projects. The discount rate is another method which is similar to the net present value method but reflects more on the time preference. This approach may focus on the opportunity cost of

( Answers to Mini-Case Questions BioCom Inc. This mini-case provides a review of the methodology and rationale associated with the various capital budgeting evaluation methods such as payback period, discounted payback period, NPV, IRR, MIRR, and PI. 1. Compute the payback period for each project. |Time of Cash Flow

It must be done to determine the net present value (NPV). Internal rate of return (IRR) is the discount rate that makes NPV equal to zero. It is also called the time-adjusted rate of return.

Financial analysis of a new project Introduction The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR). Background My dad has a textile business, involved in embroidery and painting of the fabric. I have been visiting my dad’s