preview

The Dilemma at Day-Pro

Satisfactory Essays

1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case.
Answer :
Year Synthetic Resin Epoxy Resin Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows
0 -$1,000,000 -$1,000,000 -$800,000 -$800,000
1 $350,000 -$650,000 $600,000 -$200,000
2 $400,000 -$250,000 $400,000 $200,000
3 $500,000 $250,000 $300,000 $500,000
4 $650,000 $900,000 $200,000 $700,000
5 $700,000 $1,600,000 $200,000 $900,000
Payback period for synthetic resin =
Payback period for epoxy resin =
Payback period tidak sesuai digunakan sebagai bahan pertimbangan untuk investasi skala besar seperti investasi membangun manufaktur thermosetting resin karena …show more content…

Maka dari itu kelemahan dari IRR adalah tidak memperkirakan besarnya investasi dan present value dari cash flow hasil investasinya berdasarkan discount rate yang berlaku.

5. Calculate the NPV profiles for the two projects and explain the relevance of the crossover point. How should Tim convince the Board that the NPV method is the way to go?
Answer :
Net Present Value (NPV) pada discount rate 10% :
Year Synthetic Resin Epoxy Resin Cash Flows PVIF PV NPV Cash Flows PVIF PV NPV
0 -$1,000,000 1.000 ($1,000,000) ($1,000,000) -$800,000 1.000 ($800,000) ($800,000)
1 $350,000 0.909 $318,182 ($681,818) $600,000 0.909 $545,455 ($254,545)
2 $400,000 0.826 $330,579 ($351,240) $400,000 0.826 $330,579 $76,033
3 $500,000 0.751 $375,657 $24,418 $300,000 0.751 $225,394 $301,427
4 $650,000 0.683 $443,959 $468,376 $200,000 0.683 $136,603 $438,030
5 $700,000 0.621 $434,645 $903,021 $200,000 0.621 $124,184 $562,214

Net Present Value (NPV) pada berbagai discount rate :
Discount Rate NPV Synthetic NPV Epoxy
0% $ 1,600,000 $ 900,000
5% $ 1,211,289 $ 714,637
10% $ 903,021 $ 562,214
15% $ 655,227 $ 435,237
20% $ 453,575

Get Access