1. Payback Period and Net Present Value[LO1, 2] If a project with conventional cash flows has a payback period less than the project’s life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the project’s life, what can you say about the NPV? Explain.
Internal Rate of Return[LO5] Concerning IRR:
a. Describe how the IRR is calculated, and describe the information this measure provides about a sequence of cash flows. What is the IRR criterion decision rule?
b. What is the relationship between IRR and NPV? Are there any situations in which you might prefer one method over the other? Explain.
c. Despite its shortcomings in some situations, why do most financial managers use IRR along with NPV when evaluating projects? Can you think of a situation in which IRR might be a more appropriate measure to use than NPV? Explain.
14. Net Present Value[LO1] It is sometimes stated that “the net present value approach assumes reinvestment of the intermediate cash flows at the required return.” Is this claim correct? To answer, suppose you calculate the NPV of a project in the usual way. Next, suppose you do the following:
a. Calculate the future value (as of the end of the project) of all the cash flows other than the initial outlay assuming they are reinvested at the required return, producing a single future value figure for the project.
b. Calculate the NPV of the project using the single future value calculated in the previous step and the initial outlay. It is easy to verify that you will get the same NPV as in your original calculation only if you use the required return as the reinvestment rate in the previous step.
17. Comparing Investment Criteria Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
If you apply the payback criterion, which investment will you choose? Why?
b. If you apply the discounted payback criterion, which investment will you choose? Why?
c. If you apply the NPV criterion, which investment will you choose? Why?
d. If you apply the IRR criterion, which investment will you choose? Why?
e. If you apply the profitability index criterion, which investment will you choose? Why?
5. Equivalent Annual Cost [LO4]
1. When is EAC analysis appropriate for comparing two or more projects?
2. Why is this method used?
3 .Are there any implicit assumptions required by this method that you find troubling? Explain.
6. Cash Flow and Depreciation [LO1] “When evaluating projects, we’re concerned with only the relevant incremental after tax cash flows. Therefore, because depreciation is a noncash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.
QUESTION AND PROBLEMS
1. Relevant Cash Flows [LO1] Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5 ...
Slide 1
8-1
Capital Budgeting
• Analysis of potential projects
• Long-term decisions
• Large expenditures
• Difficult/impossible to reverse
• Determines firm’s strategic direction
When a company is deciding whether to invest in a new project, large sums of money can be at stake. For
example, the Artic LNG project would build a pipeline from Alaska’s North Slope to allow natural gas to
be sent from the area. The cost of the pipeline and plant to clean the gas of impurities was expected to be
$45 to $65 billion. Decisions such as these long-term investments, with price tags in the billions, are
obviously major undertakings, and the risks and rewards must be carefully weighed. We called this the
capital budgeting decision. This module introduces you to the practice of capital budgeting. We will
consider a variety of techniques financial analysts and corporate executives routinely use for the capital
budgeting decisions.
1. Net Present Value (NPV)
2. Payback Period
3. Average Accounting Rate (AAR)
4. Internal Rate of Return (IRR) or Modified Internal Rate of Return (MIRR)
5. Profitability Index (PI)
Slide 2
8-2
• All cash flows considered?
• TVM considered?
• Risk-adjusted?
• Ability to rank projects?
• Indicates added value to the firm?
Good Decision Criteria
All things here are related to maximize the stock price. We need to ask ourselves the following
questions when evaluating capital budgeting decision rules:
Does the decision rule adjust for the time value of money?
Does the decision rule adjust for risk?
Does the decision rule provide information on whether we are creating value for the firm?
Slide 3
8-3
Net Present Value
• The difference between the market value of a
project and its cost
• How much value is created from undertaking
an investment?
Step 1: Estimate the expected future cash flows.
Step 2: Estimate the required return for projects of
this risk level.
Step 3: Find the present value of the cash flows and
subtract the initial investment to arrive at the Net
Present Value.
Net present value—the difference between the market value of an investment and its cost.
The NPV measures the increase in firm value, which is also the increase in the value of what the
shareholders own. Thus, making decisions with the NPV rule facilitates the achievement of our
goal – making decisions that will maximize shareholder wealth.
Slide 4
8-4
Net Present Value
Sum of the PVs of all cash flows
Initial cost often is CF0 and is an outflow.
NPV =∑
n
t = 0
CFt
(1 + R)t
NPV =∑
n
t = 1
CFt
(1 + R)t
- CF0
NOTE: t=0
Up to now, we’ve avoided cash flows at time t = 0, the summation begins with cash flow zero—
not one.
The PV of future cash flows is not NPV; rather, NPV is the amount remaining after offsetting the
PV of future cash flows with the initial cost. Thus, the NPV amount determines the incremental
value created by unde.
Compute IRR and NPV in Microsoft Excel 1.IRR Function .docxmccormicknadine86
Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It assumes that you start a
business at a cost of $7,500. You net the following income for the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It assumes that you start a
business at a cost of $10,000. You net the following income for the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value of an investment.
Syntax
The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial cash outlay, or may account for
it improperly depending on the version of Excel. However, there is a workaround.
This workaround requires that you NOT include the initial investment in the future
payments/income for the investment (ie: value1, value2, ... value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the initial investment.
The workaround formula is also different depending on whether the cash flows occur at the
end of the period (EOP) or at the beginning of the period (BOP).
If the cash flows occur at the end of the period (EOP), you would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial Investment
If the cash flows occur at the beginning of the period (BOP), ou would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment + value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It assumes that you pay $7,500
as an initial investment . You then receive the following in ...
Slide 1
8-1
Capital Budgeting
• Analysis of potential projects
• Long-term decisions
• Large expenditures
• Difficult/impossible to reverse
• Determines firm’s strategic direction
When a company is deciding whether to invest in a new project, large sums of money can be at stake. For
example, the Artic LNG project would build a pipeline from Alaska’s North Slope to allow natural gas to
be sent from the area. The cost of the pipeline and plant to clean the gas of impurities was expected to be
$45 to $65 billion. Decisions such as these long-term investments, with price tags in the billions, are
obviously major undertakings, and the risks and rewards must be carefully weighed. We called this the
capital budgeting decision. This module introduces you to the practice of capital budgeting. We will
consider a variety of techniques financial analysts and corporate executives routinely use for the capital
budgeting decisions.
1. Net Present Value (NPV)
2. Payback Period
3. Average Accounting Rate (AAR)
4. Internal Rate of Return (IRR) or Modified Internal Rate of Return (MIRR)
5. Profitability Index (PI)
Slide 2
8-2
• All cash flows considered?
• TVM considered?
• Risk-adjusted?
• Ability to rank projects?
• Indicates added value to the firm?
Good Decision Criteria
All things here are related to maximize the stock price. We need to ask ourselves the following
questions when evaluating capital budgeting decision rules:
Does the decision rule adjust for the time value of money?
Does the decision rule adjust for risk?
Does the decision rule provide information on whether we are creating value for the firm?
Slide 3
8-3
Net Present Value
• The difference between the market value of a
project and its cost
• How much value is created from undertaking
an investment?
Step 1: Estimate the expected future cash flows.
Step 2: Estimate the required return for projects of
this risk level.
Step 3: Find the present value of the cash flows and
subtract the initial investment to arrive at the Net
Present Value.
Net present value—the difference between the market value of an investment and its cost.
The NPV measures the increase in firm value, which is also the increase in the value of what the
shareholders own. Thus, making decisions with the NPV rule facilitates the achievement of our
goal – making decisions that will maximize shareholder wealth.
Slide 4
8-4
Net Present Value
Sum of the PVs of all cash flows
Initial cost often is CF0 and is an outflow.
NPV =∑
n
t = 0
CFt
(1 + R)t
NPV =∑
n
t = 1
CFt
(1 + R)t
- CF0
NOTE: t=0
Up to now, we’ve avoided cash flows at time t = 0, the summation begins with cash flow zero—
not one.
The PV of future cash flows is not NPV; rather, NPV is the amount remaining after offsetting the
PV of future cash flows with the initial cost. Thus, the NPV amount determines the incremental
value created by unde.
Compute IRR and NPV in Microsoft Excel 1.IRR Function .docxmccormicknadine86
Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It assumes that you start a
business at a cost of $7,500. You net the following income for the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It assumes that you start a
business at a cost of $10,000. You net the following income for the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value of an investment.
Syntax
The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial cash outlay, or may account for
it improperly depending on the version of Excel. However, there is a workaround.
This workaround requires that you NOT include the initial investment in the future
payments/income for the investment (ie: value1, value2, ... value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the initial investment.
The workaround formula is also different depending on whether the cash flows occur at the
end of the period (EOP) or at the beginning of the period (BOP).
If the cash flows occur at the end of the period (EOP), you would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial Investment
If the cash flows occur at the beginning of the period (BOP), ou would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment + value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It assumes that you pay $7,500
as an initial investment . You then receive the following in ...
Compute IRR and NPV in Microsoft Excel 1.IRR Function .docxpatricke8
Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It assumes that you start a
business at a cost of $7,500. You net the following income for the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It assumes that you start a
business at a cost of $10,000. You net the following income for the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value of an investment.
Syntax
The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial cash outlay, or may account for
it improperly depending on the version of Excel. However, there is a workaround.
This workaround requires that you NOT include the initial investment in the future
payments/income for the investment (ie: value1, value2, ... value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the initial investment.
The workaround formula is also different depending on whether the cash flows occur at the
end of the period (EOP) or at the beginning of the period (BOP).
If the cash flows occur at the end of the period (EOP), you would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial Investment
If the cash flows occur at the beginning of the period (BOP), ou would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment + value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It assumes that you pay $7,500
as an initial investment . You then receive the following in.
AgendaComprehending risk when modeling investment (project) de.docxgalerussel59292
Agenda
Comprehending risk when modeling investment (project) decisions
Standalone Risk
Market Risk
1
1
Project Risk
Standalone Risk: Risk based on uncertainty of a projects cash flows
Sensitivity
Scenarios
Breakeven
Simulations
Market Risk: Risk of the project as seen by a well diversified investor
Beta
2
Sensitivity, Scenario, and Break-Even
Each allows us to look behind the NPV number to see how stable our estimates are.
Breakeven: sales required to breakeven
Accounting break-even: sales volume at which net income = 0
Cash break-even: sales volume at which operating cash flow = 0
Financial break-even: sales volume at which net present value = 0
Sensitivity: how sensitive a particular NPV calculation is to changes in an input variable holding all other assumptions are held constant
Scenario: examine impact on NPV given a confluence of factors
When working with spreadsheets, try to build your model so that you can adjust variables in a single cell and have the NPV calculations update accordingly.
3
3
Monte Carlo Simulation
A more sophisticated variation of the scenario analysis is Monte Carlo simulation.
In a Monte Carlo simulation, analysts specify a range or a distribution of potential outcomes for each of the model’s assumptions.
Pick a probability distribution for each input variable (units, price, variable costs, etc).
The computer program will pick a random value from each input variable, calculate the NPV and store the result. This is a trial.
Repeat the process many times, saving the input variables and the output (NPV).
End result: Probability distribution of NPV based on sample of simulated values.
4
Example
5
6
When a firm with both debt and equity invests in an asset similar to its existing assets (business), the WACC is the appropriate discount rate to use in NPV calculations.
In conglomerates, the WACC reflects the return that the firm must earn on average across all its assets to satisfy investors, but using the WACC to discount cash flows of a particular investment leads to mistakes.
Any project’s cost of capital depends on the use to which the capital is being put—not the source.
Therefore, it depends on the risk of the project and not the risk of the company.
When a firm invests in an asset that is different from its existing assets, it should look for pure-play firms to find the right discount rate.
6
Finding the Right Discount Rate
6
You are a financial analyst at General Electric and are preparing a cost of equity estimate for a project analysis using NPV:
CAPM = Risk Free Rate + Beta * Market Risk Premium
9.5% = 3.0% + 1.1 * 5.9%
Lines of Business
Financial Services
Power Generation
Aviation
Transportation
Health Care
Consumer Goods
When evaluating a new power generation investment for GE, which cost of capital should be used?
Capital Budgeting & Project Risk
7
Beta
1.8
0.6
1.2
1.3
0.8
1.1
7
17
Capital Budgeti.
Monte Carl Simulation is a powerful and effective tool when used properly helps to navigate the expected Net Present Value NPV. This presentation helps to improve the pattern to ackowlege onthe Odessa Investment by Decision Dres.
Top of Form 1.The difference between the present value.docxamit657720
Top of Form
1.
The difference between the present value of an investment?s future cash flows and its initial cost is the:
net present value.
internal rate of return.
payback period.
profitability index.
discounted payback period.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
2.
Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
An investment project should be accepted only if the NPV is equal to the initial cash flow.
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
An investment project that has positive cash flows for every time period after the initial investment should be accepted.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
3.
The primary reason that company projects with positive net present values are considered acceptable is that:
they create value for the owners of the firm.
the project's rate of return exceeds the rate of inflation.
they return the initial cash outlay within three years or less.
the required cash inflows exceed the actual cash inflows.
the investment's cost exceeds the present value of the cash inflows.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
4.
Accepting a positive net present value (NPV) project:
indicates the project will pay back within the required period of time.
means the present value of the expected cash flows is equal to the project’s cost.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
is expected to increase the stockholders’ value by the amount of the NPV.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
5.
The net present value method of capital budgeting analysis does all of the following
except:
incorporate risk into the analysis.
consider all relevant cash flow information.
use all of a project's cash flows.
discount all future cash flows.
provide a specific anticipated rate of return.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
6.
What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.
−$287.22
−$1,195.12
−$1,350.49
$204.36
$797.22
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
7.
Maxwell Software, Inc., has the following mutually exclusive projects.
Year
Project A
Project B
0
–$29,000
–$32,000
1
16,500
17,500
2
13,000
11,500
3
3,800
13,000
a-1.
Calculate the payback period for each project.
(Do not round interme ...
Question 1· (Part 1)· Using a 4.5 discount rate, calculat.docxmakdul
Question 1
· (Part 1)
· Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
·
· Project 1
· Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
·
· Project 2
· Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
·
· Project 3
· Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
·
· (Part 2)
· Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
·
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
BBA 3301, Financial Management 1
UNIT VII STUDY GUIDE
Capital Budgeting
Learning Objectives
Upon completion of this unit, students should be able to:
1. Contrast mutually exclusive project decisions and stand-alone project
decisions.
2. Calculate payback periods.
3. Calculate net present value (NPV) for various investment projects.
4. Calculate internal rate of return (IRR) using Excel.
5. Calculate the profitability index (PI) to compare capital projects.
6. Contrast results from various capital budgeting techniques by assessing
the strengths and weaknesses.
Written Lecture
This unit combines tools from time value of money and applies them to the most
important element of management, long-term planning. The managerial function
is concerned with the allocation of resources and the deployment of capital
(money) to long-term projects and is pivotal to the life of a business.
Capital budgeting involves the planning of large expenditures on long-term
(capital) projects. Ranked in order of increasing risk, common categories of
capital budgeting include replacement, expansion, or new products/ventures.
Capital budgeting projects can be further classified as either stand-alone or
mutually exclusive. A stand-alone project has no competing alternatives.
Mutually exclusive projects involve selecting one project from among two or
more alternatives. Mutual exclusivity may be due to constraints in budget
(amount), or limited resources (available land, human resources, machinery,
etc.).
The typical structure of a capital budgeting analysis involves a negative initial
outlay, then a series of positive cash flows such as those provided below:
Example
C0 $(50,000)
C1 15,000
C2 15,000
C3 15,000
C4 15,000
C5 15,000
The above example will be used to illustrate the commonly used capital
budgeting techniques. The following techniques are stressed in this unit:
Payback Period: determines how many years it takes to recover initial cost.
Using this method, shorter paybacks are better (when compar ...
Question 1· (Part 1)· Using a 4.5 discount rate, calculat.docxIRESH3
Question 1
· (Part 1)
· Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
·
· Project 1
· Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
·
· Project 2
· Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
·
· Project 3
· Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
·
· (Part 2)
· Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
·
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
BBA 3301, Financial Management 1
UNIT VII STUDY GUIDE
Capital Budgeting
Learning Objectives
Upon completion of this unit, students should be able to:
1. Contrast mutually exclusive project decisions and stand-alone project
decisions.
2. Calculate payback periods.
3. Calculate net present value (NPV) for various investment projects.
4. Calculate internal rate of return (IRR) using Excel.
5. Calculate the profitability index (PI) to compare capital projects.
6. Contrast results from various capital budgeting techniques by assessing
the strengths and weaknesses.
Written Lecture
This unit combines tools from time value of money and applies them to the most
important element of management, long-term planning. The managerial function
is concerned with the allocation of resources and the deployment of capital
(money) to long-term projects and is pivotal to the life of a business.
Capital budgeting involves the planning of large expenditures on long-term
(capital) projects. Ranked in order of increasing risk, common categories of
capital budgeting include replacement, expansion, or new products/ventures.
Capital budgeting projects can be further classified as either stand-alone or
mutually exclusive. A stand-alone project has no competing alternatives.
Mutually exclusive projects involve selecting one project from among two or
more alternatives. Mutual exclusivity may be due to constraints in budget
(amount), or limited resources (available land, human resources, machinery,
etc.).
The typical structure of a capital budgeting analysis involves a negative initial
outlay, then a series of positive cash flows such as those provided below:
Example
C0 $(50,000)
C1 15,000
C2 15,000
C3 15,000
C4 15,000
C5 15,000
The above example will be used to illustrate the commonly used capital
budgeting techniques. The following techniques are stressed in this unit:
Payback Period: determines how many years it takes to recover initial cost.
Using this method, shorter paybacks are better (when compar ...
Part ADiscount rate5CommentsPROJECT 1(Insulate OfficeYearTotal1.docxherbertwilson5999
Part ADiscount rate5%CommentsPROJECT 1
(Insulate OfficeYearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 2
(Mortgage payment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 3
(Invest in business)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 4
(Savings - no investment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROI
Part A
Cumulative discounted costs
Cumulative discounted benefits
Mortgage benefitYearMortgage value without investmentMortgage value with investementBenefit based on investment12345678910
SIT374 AND SIT764
PROJECT MANAGEMENT
Net Present Value
Net Present Value
The text gives an example of two projects that have
common positive cash flows after 5 years.
The text also notes “everyone understand a dollar
earned today is worth more tomorrow”. Do we
understand?
Net Present Value
Rationale.
If I spend $1000 today as opposed to in 5 years, I lose
the interest I would have earned on that money over
the 5 years.
If I don’t get paid on time, I lose the interest I should
have earned on the money whilst it wasn’t in my bank
account.
In short…
Hang onto money for a long as you can so you earn the
interest
Get money in as quick as you can so you earn the
interest
Net Present Value
Start with a new spreadsheet, preparing for the
benefits, costs and calculated cashflow for the
anticipated lifecycle of the product.
The discount date in a ‘real’ calculation would likely
come from a finance expert, but could be as simple
as the interest rate of borrowed money. However,
both projects will apply the same rate.
Net Present Value
Add in the anticipated earnings of the product or
project over the anticipated lifespan.
Also, add in the startup costs, and ongoing costs
of the project over the anticipated lifespan of the
project, considering support, maintenance, new
development etc
Net Present Value
As NPV is an analysis of cash flow, calculate the
anticipated cash flow on a yearly basis. A simple
calculation of benefits less costs to indicate the
net benefit in that year.
Net Present Value
NPV can then be calculated using the simple ‘NPV’
function in excel, using the values from your
cashflow fields and your discount rate.
YThis paper is due Monday, 30 November. You will need to use at leas.docxpaynetawnya
YThis paper is due Monday, 30 November. You will need to use at least ONE primary source, and TWO secondary sources. 12 font, double spaced, New times, 5 pages.
How did the Vikings construct their ships so that they were able to go such long distances? What impact did they have on the areas that they settled?
No plagiarism and No Paraphrasing. Put it on your own words, this is a major and final exam grade, please.
I will only accept on GOOD RATINGS PROFESSORS
.
You have spent a lot of time researching a company. Would you inve.docxpaynetawnya
You have spent a lot of time researching a company. Would you invest in that company? (assume you can afford it). Why or why not? Is another company covered by a classmate preferable?
The company is Lenovo.Co
at least 250 words.
othr company my classmates covered are Walmart, Apple.Inc, Ikea,etc
.
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Compute IRR and NPV in Microsoft Excel 1.IRR Function .docxpatricke8
Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It assumes that you start a
business at a cost of $7,500. You net the following income for the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It assumes that you start a
business at a cost of $10,000. You net the following income for the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value of an investment.
Syntax
The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial cash outlay, or may account for
it improperly depending on the version of Excel. However, there is a workaround.
This workaround requires that you NOT include the initial investment in the future
payments/income for the investment (ie: value1, value2, ... value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the initial investment.
The workaround formula is also different depending on whether the cash flows occur at the
end of the period (EOP) or at the beginning of the period (BOP).
If the cash flows occur at the end of the period (EOP), you would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial Investment
If the cash flows occur at the beginning of the period (BOP), ou would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment + value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It assumes that you pay $7,500
as an initial investment . You then receive the following in.
AgendaComprehending risk when modeling investment (project) de.docxgalerussel59292
Agenda
Comprehending risk when modeling investment (project) decisions
Standalone Risk
Market Risk
1
1
Project Risk
Standalone Risk: Risk based on uncertainty of a projects cash flows
Sensitivity
Scenarios
Breakeven
Simulations
Market Risk: Risk of the project as seen by a well diversified investor
Beta
2
Sensitivity, Scenario, and Break-Even
Each allows us to look behind the NPV number to see how stable our estimates are.
Breakeven: sales required to breakeven
Accounting break-even: sales volume at which net income = 0
Cash break-even: sales volume at which operating cash flow = 0
Financial break-even: sales volume at which net present value = 0
Sensitivity: how sensitive a particular NPV calculation is to changes in an input variable holding all other assumptions are held constant
Scenario: examine impact on NPV given a confluence of factors
When working with spreadsheets, try to build your model so that you can adjust variables in a single cell and have the NPV calculations update accordingly.
3
3
Monte Carlo Simulation
A more sophisticated variation of the scenario analysis is Monte Carlo simulation.
In a Monte Carlo simulation, analysts specify a range or a distribution of potential outcomes for each of the model’s assumptions.
Pick a probability distribution for each input variable (units, price, variable costs, etc).
The computer program will pick a random value from each input variable, calculate the NPV and store the result. This is a trial.
Repeat the process many times, saving the input variables and the output (NPV).
End result: Probability distribution of NPV based on sample of simulated values.
4
Example
5
6
When a firm with both debt and equity invests in an asset similar to its existing assets (business), the WACC is the appropriate discount rate to use in NPV calculations.
In conglomerates, the WACC reflects the return that the firm must earn on average across all its assets to satisfy investors, but using the WACC to discount cash flows of a particular investment leads to mistakes.
Any project’s cost of capital depends on the use to which the capital is being put—not the source.
Therefore, it depends on the risk of the project and not the risk of the company.
When a firm invests in an asset that is different from its existing assets, it should look for pure-play firms to find the right discount rate.
6
Finding the Right Discount Rate
6
You are a financial analyst at General Electric and are preparing a cost of equity estimate for a project analysis using NPV:
CAPM = Risk Free Rate + Beta * Market Risk Premium
9.5% = 3.0% + 1.1 * 5.9%
Lines of Business
Financial Services
Power Generation
Aviation
Transportation
Health Care
Consumer Goods
When evaluating a new power generation investment for GE, which cost of capital should be used?
Capital Budgeting & Project Risk
7
Beta
1.8
0.6
1.2
1.3
0.8
1.1
7
17
Capital Budgeti.
Monte Carl Simulation is a powerful and effective tool when used properly helps to navigate the expected Net Present Value NPV. This presentation helps to improve the pattern to ackowlege onthe Odessa Investment by Decision Dres.
Top of Form 1.The difference between the present value.docxamit657720
Top of Form
1.
The difference between the present value of an investment?s future cash flows and its initial cost is the:
net present value.
internal rate of return.
payback period.
profitability index.
discounted payback period.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
2.
Which statement concerning the net present value (NPV) of an investment or a financing project is correct?
A financing project should be accepted if, and only if, the NPV is exactly equal to zero.
An investment project should be accepted only if the NPV is equal to the initial cash flow.
Any type of project should be accepted if the NPV is positive and rejected if it is negative.
Any type of project with greater total cash inflows than total cash outflows, should always be accepted.
An investment project that has positive cash flows for every time period after the initial investment should be accepted.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
3.
The primary reason that company projects with positive net present values are considered acceptable is that:
they create value for the owners of the firm.
the project's rate of return exceeds the rate of inflation.
they return the initial cash outlay within three years or less.
the required cash inflows exceed the actual cash inflows.
the investment's cost exceeds the present value of the cash inflows.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
4.
Accepting a positive net present value (NPV) project:
indicates the project will pay back within the required period of time.
means the present value of the expected cash flows is equal to the project’s cost.
ignores the inherent risks within the project.
guarantees all cash flow assumptions will be realized.
is expected to increase the stockholders’ value by the amount of the NPV.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
5.
The net present value method of capital budgeting analysis does all of the following
except:
incorporate risk into the analysis.
consider all relevant cash flow information.
use all of a project's cash flows.
discount all future cash flows.
provide a specific anticipated rate of return.
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
6.
What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent.
−$287.22
−$1,195.12
−$1,350.49
$204.36
$797.22
References
Multiple Choice
Section: 5.1 Net Present Value and Other Investment Rules
7.
Maxwell Software, Inc., has the following mutually exclusive projects.
Year
Project A
Project B
0
–$29,000
–$32,000
1
16,500
17,500
2
13,000
11,500
3
3,800
13,000
a-1.
Calculate the payback period for each project.
(Do not round interme ...
Question 1· (Part 1)· Using a 4.5 discount rate, calculat.docxmakdul
Question 1
· (Part 1)
· Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
·
· Project 1
· Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
·
· Project 2
· Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
·
· Project 3
· Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
·
· (Part 2)
· Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
·
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
BBA 3301, Financial Management 1
UNIT VII STUDY GUIDE
Capital Budgeting
Learning Objectives
Upon completion of this unit, students should be able to:
1. Contrast mutually exclusive project decisions and stand-alone project
decisions.
2. Calculate payback periods.
3. Calculate net present value (NPV) for various investment projects.
4. Calculate internal rate of return (IRR) using Excel.
5. Calculate the profitability index (PI) to compare capital projects.
6. Contrast results from various capital budgeting techniques by assessing
the strengths and weaknesses.
Written Lecture
This unit combines tools from time value of money and applies them to the most
important element of management, long-term planning. The managerial function
is concerned with the allocation of resources and the deployment of capital
(money) to long-term projects and is pivotal to the life of a business.
Capital budgeting involves the planning of large expenditures on long-term
(capital) projects. Ranked in order of increasing risk, common categories of
capital budgeting include replacement, expansion, or new products/ventures.
Capital budgeting projects can be further classified as either stand-alone or
mutually exclusive. A stand-alone project has no competing alternatives.
Mutually exclusive projects involve selecting one project from among two or
more alternatives. Mutual exclusivity may be due to constraints in budget
(amount), or limited resources (available land, human resources, machinery,
etc.).
The typical structure of a capital budgeting analysis involves a negative initial
outlay, then a series of positive cash flows such as those provided below:
Example
C0 $(50,000)
C1 15,000
C2 15,000
C3 15,000
C4 15,000
C5 15,000
The above example will be used to illustrate the commonly used capital
budgeting techniques. The following techniques are stressed in this unit:
Payback Period: determines how many years it takes to recover initial cost.
Using this method, shorter paybacks are better (when compar ...
Question 1· (Part 1)· Using a 4.5 discount rate, calculat.docxIRESH3
Question 1
· (Part 1)
· Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
·
· Project 1
· Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
·
· Project 2
· Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
·
· Project 3
· Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
·
· (Part 2)
· Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
·
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
BBA 3301, Financial Management 1
UNIT VII STUDY GUIDE
Capital Budgeting
Learning Objectives
Upon completion of this unit, students should be able to:
1. Contrast mutually exclusive project decisions and stand-alone project
decisions.
2. Calculate payback periods.
3. Calculate net present value (NPV) for various investment projects.
4. Calculate internal rate of return (IRR) using Excel.
5. Calculate the profitability index (PI) to compare capital projects.
6. Contrast results from various capital budgeting techniques by assessing
the strengths and weaknesses.
Written Lecture
This unit combines tools from time value of money and applies them to the most
important element of management, long-term planning. The managerial function
is concerned with the allocation of resources and the deployment of capital
(money) to long-term projects and is pivotal to the life of a business.
Capital budgeting involves the planning of large expenditures on long-term
(capital) projects. Ranked in order of increasing risk, common categories of
capital budgeting include replacement, expansion, or new products/ventures.
Capital budgeting projects can be further classified as either stand-alone or
mutually exclusive. A stand-alone project has no competing alternatives.
Mutually exclusive projects involve selecting one project from among two or
more alternatives. Mutual exclusivity may be due to constraints in budget
(amount), or limited resources (available land, human resources, machinery,
etc.).
The typical structure of a capital budgeting analysis involves a negative initial
outlay, then a series of positive cash flows such as those provided below:
Example
C0 $(50,000)
C1 15,000
C2 15,000
C3 15,000
C4 15,000
C5 15,000
The above example will be used to illustrate the commonly used capital
budgeting techniques. The following techniques are stressed in this unit:
Payback Period: determines how many years it takes to recover initial cost.
Using this method, shorter paybacks are better (when compar ...
Part ADiscount rate5CommentsPROJECT 1(Insulate OfficeYearTotal1.docxherbertwilson5999
Part ADiscount rate5%CommentsPROJECT 1
(Insulate OfficeYearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 2
(Mortgage payment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 3
(Invest in business)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 4
(Savings - no investment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROI
Part A
Cumulative discounted costs
Cumulative discounted benefits
Mortgage benefitYearMortgage value without investmentMortgage value with investementBenefit based on investment12345678910
SIT374 AND SIT764
PROJECT MANAGEMENT
Net Present Value
Net Present Value
The text gives an example of two projects that have
common positive cash flows after 5 years.
The text also notes “everyone understand a dollar
earned today is worth more tomorrow”. Do we
understand?
Net Present Value
Rationale.
If I spend $1000 today as opposed to in 5 years, I lose
the interest I would have earned on that money over
the 5 years.
If I don’t get paid on time, I lose the interest I should
have earned on the money whilst it wasn’t in my bank
account.
In short…
Hang onto money for a long as you can so you earn the
interest
Get money in as quick as you can so you earn the
interest
Net Present Value
Start with a new spreadsheet, preparing for the
benefits, costs and calculated cashflow for the
anticipated lifecycle of the product.
The discount date in a ‘real’ calculation would likely
come from a finance expert, but could be as simple
as the interest rate of borrowed money. However,
both projects will apply the same rate.
Net Present Value
Add in the anticipated earnings of the product or
project over the anticipated lifespan.
Also, add in the startup costs, and ongoing costs
of the project over the anticipated lifespan of the
project, considering support, maintenance, new
development etc
Net Present Value
As NPV is an analysis of cash flow, calculate the
anticipated cash flow on a yearly basis. A simple
calculation of benefits less costs to indicate the
net benefit in that year.
Net Present Value
NPV can then be calculated using the simple ‘NPV’
function in excel, using the values from your
cashflow fields and your discount rate.
YThis paper is due Monday, 30 November. You will need to use at leas.docxpaynetawnya
YThis paper is due Monday, 30 November. You will need to use at least ONE primary source, and TWO secondary sources. 12 font, double spaced, New times, 5 pages.
How did the Vikings construct their ships so that they were able to go such long distances? What impact did they have on the areas that they settled?
No plagiarism and No Paraphrasing. Put it on your own words, this is a major and final exam grade, please.
I will only accept on GOOD RATINGS PROFESSORS
.
You have spent a lot of time researching a company. Would you inve.docxpaynetawnya
You have spent a lot of time researching a company. Would you invest in that company? (assume you can afford it). Why or why not? Is another company covered by a classmate preferable?
The company is Lenovo.Co
at least 250 words.
othr company my classmates covered are Walmart, Apple.Inc, Ikea,etc
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A viable password policy, which includes complexity, duration, and history requirements
A cryptography method to ensure vital data is encrypted
A remote access plan to ensure that users who access the network remotely do so in a secure and efficient manner
A thorough plan to protect the network from malware and various types of malicious attacks
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Your paper should be 8-10 pages in length with document formatting and citations of sources in conformity with APA Guidelines
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First
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un
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Individually,
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BUS/211
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How is it that certain groups in the United States never given the opportunity to “assimilate”? Include the following groups in your analysis: Hispanics, African-Americans and others of African descent, Native-Americans, and Asian-Americans.
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Resource:
University of Phoenix Material: Sustainable Agriculture Project Proposal Template
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Write
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Explain
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The importance—both locally and globally—of having a sustainable food supply
The major threats to this land’s sustainability
The characteristics that will enable your land to provide a long-term sustainable food supply
The steps your team will take to develop these characteristics
Ways this land will benefit the city economically and environmentally
The timeline of your plan
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You should cite all sources using APA style format, and include a reference section at the end of your submission.
Up to 300 words times new Roman,12 font
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Your RatingGroup DiscussionDelinquency Prevention Please .docxpaynetawnya
Your Rating:
Group Discussion
"Delinquency Prevention" Please respond to the following:
Describe the key differences between primary, secondary, and tertiary prevention programs. Discuss the overall effectiveness of these types of programs.
From the e-Activity, identify at least two (2) factors that contribute to a delinquency prevention program’s success. Specify the primary manner in which these types of programs have improved the lives of juveniles and their families.
.
Your report due in Week 6 requires you to look at tools of liquidity.docxpaynetawnya
Your report due in Week 6 requires you to look at tools of liquidity, profitability, and solvency. Discuss several of the financial analysis tools useful in assessing inventory issues and report the actual numbers for the company you selected for Assignment 1 in Week 6. Describe the impact of your numbers on reasons for investing or not investing in the company
Identify the inventory valuation method (LIFO, FIFO, Average, etc.) used by your company and discuss the impact of the method on the income statement and balance sheet. Include the pros and cons/ tradeoffs of the method on the reported numbers.
.
Your Project Sponsor pulls you aside and admits that he has no idea .docxpaynetawnya
Your Project Sponsor pulls you aside and admits that he has no idea what earned value management concepts (EVM), such as AC, BCWP, and EV mean; he is only concerned that you deliver the project ahead of schedule and under budget. Using the information covered from your readings and other activities, develop a project to educate him, including which EVM performance measures you would educate him on. Provide a rationale for your selection of topics.
.
Your progress on the project thus far. Have you already compiled i.docxpaynetawnya
Your progress on the project thus far. Have you already compiled it?
Anything interesting you learned about the organization you chose.
The most difficult component of this project. What made it challenging? How did you address this challenge?
Post a 2 to 4 paragraph discussion post (300 words minimum). Justify your explanations by including in-text citations and references in APA format as applicable.
.
Week 6 - Discussion 1Evaluate the characteristics of each mode o.docxpaynetawnya
Week 6 - Discussion 1
Evaluate the characteristics of each mode of transportation in terms of time and cost efficiencies. Give examples.
Week 6 - Discussion 2
The Bill of Lading is the single most important document in transportation. Describe at least two functions it performs in international logistics.
.
WEEK 5 – EXERCISES Enter your answers in the spaces pr.docxpaynetawnya
WEEK 5 – EXERCISES
Enter your answers in the spaces provided. Save the file using your last name as the beginning of the file name (e.g., ruf_week5_exercises) and submit via “Assignments.” When appropriate,
show your work
. You can do the work by hand, scan/take a digital picture, and attach that file with your work.
For the following question(s): A school counselor tests the level of depression in fourth graders in a particular class of 20 students. The counselor wants to know whether the kind of students in this class differs from that of fourth graders in general at her school. On the test, a score of 10 indicates severe depression, while a score of 0 indicates no depression. From reports, she is able to find out about past testing. Fourth graders at her school usually score 5 on the scale, but the variation is not known. Her sample of 20 fifth graders has a mean depression score of 4.4. Use the .01 level of significance.
1.
The counselor calculates the unbiased estimate of the population’s variance to be 15. What is the variance of the distribution of means?
A)
15/20 = 0.75
B)
15/19 = 0.79
C)
15
2
/20 = 11.25
D)
15
2
/19 = 11.84
2.
Suppose the counselor tested the null hypothesis that fourth graders in this class were
less
depressed than those at the school generally. She figures her
t
score to be
-
.20. What decision should she make regarding the null hypothesis?
A)
Reject it
B)
Fail to reject it
C)
Postpone any decisions until a more conclusive study could be conducted
D)
There is not enough information given to make a decision
3.
Suppose the standard deviation she figures (the square root of the unbiased estimate of the population variance) is .85. What is the effect size?
A)
5/.85 = 5.88
B)
.85/5 = .17
C)
(5
-
4.4)/.85 = .71
D)
.85/(5
-
4.4) = 1.42
For the following question(s): Professor Juarez thinks the students in her statistics class this term are more creative than most students at this university. A previous study found that students at this university had a mean score of 35 on a standard creativity test. Professor Juarez finds that her class scores an average of 40 on this scale, with an estimated population standard deviation of 7. The standard deviation of the distribution of means comes out to 1.63.
4.
What is the
t
score?
A)
(40
-
35)/7 = .71
B)
(40
-
35)/1.63 = 3.07
C)
(40
-
35)/7
2
= 5/49 = .10
D)
(40
-
35)/1.63
2
= 5/2.66 = 1.88
5.
What effect size did Professor Juarez find?
A)
(40
-
35)/7 = .71
B)
(40
-
35)/1.63 = 3.07
C)
(40
-
35)/7
2
= 5/49 = .10
D)
(40
-
35)/1.63
2
= 5/2.66 = 1.88
6.
If Professor Juarez had 30 students in her class, and she wanted to test her hypothesis using the 5% level of significance, what cutoff
t
score would she use? (You should be able to figure this out without a table because only one answer is in the correct region.)
A)
304.11
B)
1.699.
Week 5 Writing Assignment (Part 2) Outline and Preliminary List o.docxpaynetawnya
Week 5
Writing Assignment (Part 2): Outline and Preliminary List of References
Due Week 5 and worth 100 points
Complete the outline after you have done library / Internet research for evidence that bears on your hypothesis. Provide information about all of the following components of the final paper:
Subject:
Poverty.
What is your hypothesis?
1.
Specific Hypothesis
.
2.
Applicable Sociological Concepts
.
3.
Practical Implications
. Discuss the value of sociological research into your issue. Determine whether or not there are (or would be) practical implications of sociological inquiry into this issue.
Evidence
. This is the most important part of the paper. Analyze at least two (2) lines of evidence that pertain to the hypothesis that you are evaluating. Does the evidence support your hypothesis? For each type of evidence, consider possible biases and alternative interpretations.
Conclusions
. Draw conclusions based on the evidence that you have discovered. Does the evidence confirm or refute your hypothesis? Is the evidence sufficiently convincing to draw firm conclusions about your hypothesis?
For example, here is a generic example of what the headings of your possible outline might look like:
I.
Specific Hypothesis.
II.
Applicable Sociological Concepts.
a.
Theory A
b.
Concept 1
c.
Concept 2
III.
Practical Implications.
a.
Implications for public policy
i.
Education
ii.
Taxes
b.
Implications for employers
c.
Implications for spouses of workaholics
Evidence.
Line of evidence 1
i.
The evidence and what it means
ii.
Possible biases
iii.
Alternative explanations of what it means.
b.
Line of evidence 2
i.
The evidence and what it means
ii.
Possible biases
Conclusion(s): All available evidence refutes the hypothesis, but there are alternative explanations.
References
:
Baker, A. & Abel, E (2005) Villagers reject modern attitudes about car washing.
International Journal of Sociology
, 11, 12-57. Retrieved from EBSCO-Host.
Doe, J. (2010, April 1) Villagers retain traditional attitudes despite bombardment with western television.
The New York Times
. Retrieved from
www.nytimes.com/village_update
Steiner, H. (2012, January 4) Revolt against local ordinances in the village.
Time Magazine
. pp. 14-15.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA format.
The specific course learning outcomes associated with this assignment are:
Evaluate the various methodologies for sociological research.
Apply the sociological perspective to a variety of socioeconomic and political problems.
Critically examine how society shapes individuals and how individuals shape society.
Use technology and information resources to research issues in sociology.
Write clearly and concisely about sociology using proper writing mechanics.
.
Week 5 eActivityRead the Recommendation for Cryptographic Key.docxpaynetawnya
Week 5 eActivity
Read the "
Recommendation for Cryptographic Key Generation
" by NIST.
Read Chapter 19 of "
An Introduction to Computer Security: The NIST Handbook.
"
Please be prepared to discuss each of these items
Analyze the overall attributes of symmetric and asymmetric cryptography technologies. Discuss the advantages and disadvantages of each, and speculate upon the main reasons why organizations utilize both technologies today. Give an example of where you would consider using each of these forms of encryption within an organization to support your response.
From the e-Activity, give your opinion of whether cryptography should be a part of every email security strategy or if there are specific characteristics of organizations where such measures are not needed. Justify your answer.
.
Week 5 Discussion
Network Security
Supporting Activity: Network Security I
Write
a 200- to 300-word response to the following:
1
• What are the predominant electronic and physical threats to communications networks?
Supporting Activity Network Security II
Write
a 200- to 300-word response to the following question:
2 • What is the importance of explicit enterprise security policies and procedures?
.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
The Indian economy is classified into different sectors to simplify the analysis and understanding of economic activities. For Class 10, it's essential to grasp the sectors of the Indian economy, understand their characteristics, and recognize their importance. This guide will provide detailed notes on the Sectors of the Indian Economy Class 10, using specific long-tail keywords to enhance comprehension.
For more information, visit-www.vavaclasses.com
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
How to Split Bills in the Odoo 17 POS ModuleCeline George
Bills have a main role in point of sale procedure. It will help to track sales, handling payments and giving receipts to customers. Bill splitting also has an important role in POS. For example, If some friends come together for dinner and if they want to divide the bill then it is possible by POS bill splitting. This slide will show how to split bills in odoo 17 POS.
1. Payback Period and Net Present Value[LO1, 2] If a project with .docx
1. 1. Payback Period and Net Present Value[LO1, 2] If a project
with conventional cash flows has a payback period less than the
project’s life, can you definitively state the algebraic sign of the
NPV? Why or why not? If you know that the discounted
payback period is less than the project’s life, what can you say
about the NPV? Explain.
Internal Rate of Return[LO5] Concerning IRR:
a. Describe how the IRR is calculated, and describe the
information this measure provides about a sequence of cash
flows. What is the IRR criterion decision rule?
b. What is the relationship between IRR and NPV? Are there
any situations in which you might prefer one method over the
other? Explain.
c. Despite its shortcomings in some situations, why do most
financial managers use IRR along with NPV when evaluating
projects? Can you think of a situation in which IRR might be a
more appropriate measure to use than NPV? Explain.
14. Net Present Value[LO1] It is sometimes stated that “the net
present value approach assumes reinvestment of the
intermediate cash flows at the required return.” Is this claim
correct? To answer, suppose you calculate the NPV of a project
in the usual way. Next, suppose you do the following:
a. Calculate the future value (as of the end of the project) of all
the cash flows other than the initial outlay assuming they are
reinvested at the required return, producing a single future
value figure for the project.
b. Calculate the NPV of the project using the single future value
calculated in the previous step and the initial outlay. It is easy
to verify that you will get the same NPV as in your original
calculation only if you use the required return as the
reinvestment rate in the previous step.
17. Comparing Investment Criteria Consider the following two
2. mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
If you apply the payback criterion, which investment will you
choose? Why?
b. If you apply the discounted payback criterion, which
investment will you choose? Why?
c. If you apply the NPV criterion, which investment will you
choose? Why?
d. If you apply the IRR criterion, which investment will you
choose? Why?
e. If you apply the profitability index criterion, which
investment will you choose? Why?
5. Equivalent Annual Cost [LO4]
1. When is EAC analysis appropriate for comparing two or more
projects?
2. Why is this method used?
3 .Are there any implicit assumptions required by this method
that you find troubling? Explain.
6. Cash Flow and Depreciation [LO1] “When evaluating
projects, we’re concerned with only the relevant incremental
after tax cash flows. Therefore, because depreciation is a
noncash expense, we should ignore its effects when evaluating
projects.” Critically evaluate this statement.
QUESTION AND PROBLEMS
1. Relevant Cash Flows [LO1] Parker & Stone, Inc., is looking
at setting up a new manufacturing plant in South Park to
produce garden tools. The company bought some land six years
ago for $5 million in anticipation of using it as a warehouse and
distribution site, but the company has since decided to rent
these facilities from a competitor instead. If the land were sold
today, the company would net $5.3 million. The company wants
3. to build its new manufacturing plant on this land; the plant will
cost $12.5 million to build, and the site requires $770,000 worth
of grading before it is suitable for construction. What is the
proper cash flow amount to use as the initial investment in fixed
assets when evaluating this project? Why?
2. Relevant Cash Flows [LO1] Winnebagel Corp. currently sells
30,000 motor homes per year at $68,000 each and 12,000 luxury
motor coaches per year at $105,000 each. The company wants to
introduce a new portable camper to fill out its product line; it
hopes to sell 25,000 of these campers per year at $14,000 each.
An independent consultant has determined that if Winnebagel
introduces the new campers, it should boost the sales of its
existing motor homes by 2,400 units per year and reduce the
sales of its motor coaches by 1,100 units per year. What is the
amount to use as the annual sales figure when evaluating this
project? Why?
4. Calculating OCF [LO1] Consider the following income
statement:
Fill in the missing numbers and then calculate the OCF. What is
the depreciation tax shield?
9. Calculating Project OCF [LO1] Keiper, Inc., is considering a
new three-year expansion project that requires an initial fixed
asset investment of $2.7 million. The fixed asset will be
depreciated straight-line to zero over its three-year tax life,
after which time it will be worthless. The project is estimated to
generate $2,080,000 in annual sales, with costs of $775,000. If
the tax rate is 35 percent, what is the OCF for this project?
7. Break-Even LO3] Assume a firm is considering a new project
that requires an initial investment and has equal sales and costs
over its life. Will the project reach the accounting, cash, or
4. financial break-even point first? Which will it reach next? Last?
Will this ordering always apply?
9. Capital Rationing [LO5] Going all the way back to Chapter
1, recall that we saw that partnerships and proprietorships can
face difficulties when it comes to raising capital. In the context
of this chapter, the implication is that small businesses will
generally face what problem?
1. Calculating Costs and Break-Even [LO3] Night Shades, Inc.
(NSI), manufactures biotech sunglasses. The variable materials
cost is $10.48 per unit, and the variable labor cost is $6.89 per
unit.
a. What is the variable cost per unit?
b. Suppose NSI incurs fixed costs of $870,000 during a year in
which total production is 280,000 units. What are the total costs
for the year?
c. If the selling price is $49.99 per unit, does NSI break even on
a cash basis? If depreciation is $490,000 per year, what is the
accounting break-even point?
2. Computing Average Cost [LO3] K-Too Everwear Corporation
can manufacture mountain climbing shoes for $31.85 per pair in
variable raw material costs and $22.80 per pair in variable labor
expense. The shoes sell for $145 per pair. Last year, production
was 120,000 pairs. Fixed costs were $1,750,000. What were
total production costs? What is the marginal cost per pair? What
is the average cost? If the company is considering a one-time
order for an extra 5,000 pairs, what is the minimum acceptable
total revenue from the order? Explain.
3. Scenario Analysis [LO2] Olin Transmissions, Inc., has the
following estimates for its new gear assembly project: price =
5. $1,400 per unit; variable costs = $220 per unit; fixed costs =
$3.9 million; quantity = 85,000 units. Suppose the company
believes all of its estimates are accurate only to within ±15
percent. What values should the company use for the four
variables given here when it performs its best-case scenario
analysis? What about the worst-case scenario?
It will frequently turn out that the crucial variable for a project
is sales volume. If we are thinking of creating a new product or
entering a new market, for example, the hardest thing to
forecast accurately is how much we can sell. For this reason,
sales volume is usually analyzed more closely than other
variables.
Break-even analysis is a popular and commonly used tool for
analyzing the relationship between sales volume and
profitability. There are a variety of different break-even
measures, and we have already seen several types. For example,
we discussed (in Chapter 9) how the payback period can be
interpreted as the length of time until a project breaks even,
ignoring time value.
All break-even measures have a similar goal. Loosely speaking,
we will always be asking, “How bad do sales have to get before
we actually begin to lose money?” Implicitly, we will also be
asking, “Is it likely that things will get that bad?” To get started
on this subject, we first discuss fixed and variable costs.
[LO3] FIXED AND VARIABLE COSTS
In discussing break-even, the difference between fixed and
variable costs becomes very important. As a result, we need to
be a little more explicit about the difference than we have been
so far.
Variable Costs By definition, variable costs change as the
quantity of output changes, and they are zero when production
is zero. For example, direct labor costs and raw material costs
are usually considered variable. This makes sense because if we
shut down operations tomorrow, there will be no future costs for
6. labor or raw materials.
variable costs
Costs that change when the quantity of output changes.
We will assume that variable costs are a constant amount per
unit of output. This simply means that total variable cost is
equal to the cost per unit multiplied by the number of units. In
other words, the relationship between total variable cost (VC),
cost per unit of output (v), and total quantity of output (Q) can
be written simply as:
7. Calculating Break-Even [LO3] In each of the following
cases, calculate the accounting break-even and the cash break-
even points. Ignore any tax effects in calculating the cash
break-even.
When you see something highlighted in yellow – that is where I
want you to put an answer.
Chapter 9 – Concepts Review and Critical Thinking Quesetions
1 & 7
#1 ANSWER
#7.
a. ANSWER
b.ANSWER
c. ANSWER
Chapter 9 – Questions and Problems
#14
You will need to compute the NPV and IRR of this project.
Please see my excel help below.
A. ANSWER based on NPV
B. ANSWER based on calculation of IRR
7. Problem 17
a. Payback is pretty easy to determine – ANSWER in number
of years
Project A
Project B
b. Discounted payback needs to have some computations done
–ANSWER BASED ON YOUR CALCULATIONS (see below) –
Answer in Number of years
Discounted Payback Project A
Discounted Paback Project B
c. Net Present Value using Excel. This is an example. You can
do this with both cash flows to see which one is better –
ANSWER BASED ON COMPUTING THE NPV (see example
below)
NPV Project A
NPV Project B
NPV
Year
Cash Flow A
Cash Flow B
10. ($28,678.43)
The NPV formula would be =NPV(.15,5000,55000,-
4000,49000)-100000
First you put in =NPV(
It asks for rate = .15
It asks for values
Put each value in STARTING WITH YEAR 1
separate with a comma
11. End the parenthesis
Subtract the beginning amount in YEAR 0.
That is your NPV
d. IRR is very easy in excel. Here is an example you should do
on both problems. ANSWER BASED ON IRR CALCULATION
(See example below)
IRR Project A
IRR Project B
IRR EXAMPLE
13. 4
49,000.00
2%
The IRR formula is very easy
First you put in =IRR(
DO NOT CONSIDER RATE IN THIS FORMULA. It is telling
you the rate (the internal rate)
In this formula you DO PUT IN THE STARTING YEAR 0
14. I put in B76:B80 because on my excel sheet that was the
location of these values
Close the parenthesis
This is your IRR
E. Profitability Index defined as the present value of the future
cash flows divided by the initial investment. ANSWER BASED
ON CALCULATION. SEE EXAMPLE BELOW
Profitability Index Project A
Profitability Index Project B
Profitability Index
Year
15. 0
(100,000.00)
Year zero is y our initial investment. Do not include this yet
1
5,000.00
2
55,000.00
3
(4,000.00)
4
49,000.00
71321.57
17. CHAPTER 10
When you see something highlighted in yellow – that is where I
want you to put an answer.
Concepts Review and Critical Thinking Questions
#5 ANSWER
3 questions
#6 ANSWER
QUESTIONS AND PROBLEMS
PROBLEM #1 (Hint), the original cost is not considered
because it is a sunk cost. Use the value today.
#1 ANSWER
#2 ANSWER
Sales of the new product line (portable camper):
(25,000 Units) x ($14,000 per Unit) =
Increased sales of the motor homes due to the new portable
camper introduction:
(2,400 Units) x ($68,000) =
Decreased sales of motor coachesdue to the new portable
camper introduction:
(1,100 Units) x ($105,000 per Unit) = (this will be a negative
number)
So, when evaluating this project, the amount to use as the
annual sales is:
X+X+X=XX
#4 To find the OCF, we need to complete the income
statement as follows:
Sales $ 682,900
18. Costs 437,800
Depreciation 110,400
EBIT $ ?
[email protected]% ?
Net income $ ?
The OCF for the company is:
OCF = EBIT + Depreciation – Taxes
OCF = ????
The depreciation tax shield is the depreciation times the tax
rate, so:
Depreciation tax shield = T(Depreciation)
Depreciation tax shield = ?
#9 Using the tax shield approach to calculating OCF
OCF = (Sales – Costs)(1 – T) + T(Depreciation)
OCF = ????
CHAPTER 11
CONCEPTS REVIEW AND CRITICAL THINKING
QUESTIONS
19. #7. Use the readings and videos to help you in answering this
question.
#9. Use the readings and videos to help you in answering this
question.
QUESTIONS AND PROBLEMS
Chapter 11
Problems #1, #2, #3, #7
When you see something highlighted in yellow – that is where I
want you to put an answer.
1.a. The total variable cost per unit is the sum of the two
variable costs, so:
Total variable costs per unit = Cost 1 + Cost 2
b. The total costs include all variable costs and fixed costs.
We need to make sure we are including all variable costs for the
number of units produced, so:
Total costs = Variable costs + Fixed costs
Total costs = XXXX
c. The cash breakeven, that is the point where cash flow is
zero, is:
QC = Fixed Costs / (Selling Price – Variable Cost)
QC = xxxxx units
And the accounting breakeven is:
QA = (Fixed Costs + depreciation)/ (Selling price-
Variable cost)
QA = XXXX units
20. 2. The total costs include all variable costs and fixed costs.
We need to make sure we are including all variable costs for the
number of units produced, so:
Total costs = Be sure to include the variable and fixed
costs x number produced and then add in fixed costs.
Total costs = XXXX
The marginal cost, or cost of producing one more unit, is
the total variable cost per unit, so:
(this is the same as the variable cost per unit)
Marginal cost = XXXX
The average cost per unit is the total cost of production,
divided by the quantity produced, so:
Average cost = Total cost / Total quantity
Average cost = XXXX
Minimum acceptable total revenue = XXXX (how much it
costs to make those 5000 pairs)
3. The base-case, best-case, and worst-case values are shown
below. Remember that in the best-case, sales and price increase,
while costs decrease. In the worst-case, sales and price
decrease, and costs increase.
Unit
ScenarioUnit SalesUnit PriceVariable CostFixed Costs
Base XXXXXXX XXXXXX
Best XXXXXXX XXX XXX
Worst XXXXXXX XXXXXX
21. 7. The cash breakeven equation is:
QC = FC/(P – v)
And the accounting breakeven equation is:
QA = (FC + D)/(P – v)
Using these equations, we find the following cash and
accounting breakeven points:
a. QC = XXXX QA = XXXX
b. QC = XXXX QA = XXXX
c. QC = XXXX QA = XXXX
PAYBACK METHOD
First you need to look at the amounts going out and the amounts
coming in.
How long will it take you to pay off the initial investment?
Here's a short example that you can follow for your assignment
YearAmt paid back
how much
more to go?
0-150000
14000040000-110000we paid back 40,000, but we still "owe"
110,000
23500075000-75000we paid back 75,000 total but we still 'owe"
75,000
3120000what portion of 120,000 do we need to get to 75,000?
2.63 years 75,000/120,0000.625
DISCOUNTED PAYBACK METHOD
15%Cash Flow ACash Flow ACash Flow BCash Flow B
YearCash Flow ACash Flow
BUndiscountedDiscountedUndiscountedDiscounted
0-350000-50000
1450002400045000$39,130.4324000put in formula to compute
present value
2650002200065000$49,149.3422000put in formula to compute
present value
3650001250065000$42,738.5612500put in formula to compute
22. present value
444000014600440000$251,571.4314600put in formula to
compute present value
HOW MANY YEARS???HOW MANY YEARS???
How do you get to the discounted cash flows? You have to use
the PV formula in Excel
=PV(0.15,1,0,-45000,0)
Always start the formula with an = sign. Once you put in the
PV and ( you will see some instructions.
First it asks for rate. Here I put in .15.
Then put in a comma
Then it asks for NPER. This is the number of periods. I put in
1. The reason I put in 1 was that I wanted the PV of 45,000 in 1
year
(When you compute for year2, you will put in 2, year 3, 3 etc)
Comma
Now it is asking for the payment. We do not have a payment,
so put in 0
Comma
Now it's asking for the amount you want the present value on.
I put in -45000. (you need to put in the negative sign because it
is money going away from you)
comma
put in a zero at the end
close the Parenthesis )
![1. Payback Period and Net Present Value[LO1, 2] If a project
with conventional cash flows has a payback period less than the
project’s life, can you definitively state the algebraic sign of the
NPV? Why or why not? If you know that the discounted
payback period is less than the project’s life, what can you say
about the NPV? Explain.
Internal Rate of Return[LO5] Concerning IRR:
a. Describe how the IRR is calculated, and describe the
information this measure provides about a sequence of cash
flows. What is the IRR criterion decision rule?
b. What is the relationship between IRR and NPV? Are there
any situations in which you might prefer one method over the
other? Explain.
c. Despite its shortcomings in some situations, why do most
financial managers use IRR along with NPV when evaluating
projects? Can you think of a situation in which IRR might be a
more appropriate measure to use than NPV? Explain.
14. Net Present Value[LO1] It is sometimes stated that “the net
present value approach assumes reinvestment of the
intermediate cash flows at the required return.” Is this claim
correct? To answer, suppose you calculate the NPV of a project
in the usual way. Next, suppose you do the following:
a. Calculate the future value (as of the end of the project) of all
the cash flows other than the initial outlay assuming they are
reinvested at the required return, producing a single future
value figure for the project.
b. Calculate the NPV of the project using the single future value
calculated in the previous step and the initial outlay. It is easy
to verify that you will get the same NPV as in your original
calculation only if you use the required return as the
reinvestment rate in the previous step.
17. Comparing Investment Criteria Consider the following two](https://image.slidesharecdn.com/1-221101035238-1d86b81e/85/1-Payback-Period-and-Net-Present-Value-LO1-2-If-a-project-with-docx-1-320.jpg)
![mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
If you apply the payback criterion, which investment will you
choose? Why?
b. If you apply the discounted payback criterion, which
investment will you choose? Why?
c. If you apply the NPV criterion, which investment will you
choose? Why?
d. If you apply the IRR criterion, which investment will you
choose? Why?
e. If you apply the profitability index criterion, which
investment will you choose? Why?
5. Equivalent Annual Cost [LO4]
1. When is EAC analysis appropriate for comparing two or more
projects?
2. Why is this method used?
3 .Are there any implicit assumptions required by this method
that you find troubling? Explain.
6. Cash Flow and Depreciation [LO1] “When evaluating
projects, we’re concerned with only the relevant incremental
after tax cash flows. Therefore, because depreciation is a
noncash expense, we should ignore its effects when evaluating
projects.” Critically evaluate this statement.
QUESTION AND PROBLEMS
1. Relevant Cash Flows [LO1] Parker & Stone, Inc., is looking
at setting up a new manufacturing plant in South Park to
produce garden tools. The company bought some land six years
ago for $5 million in anticipation of using it as a warehouse and
distribution site, but the company has since decided to rent
these facilities from a competitor instead. If the land were sold
today, the company would net $5.3 million. The company wants](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)