400 - 600 words; 1+ page of calculations and 100 - 150 words
Details: The CEO has given you 3 different large projects he's evaluating to see which might be most beneficial to the company to invest in.

1). A new labor-saving piece of equipment that cost $200,000 and will reduce labor and quality costs by $40,000/year for 6 years. Calculate the following methods for this case
a. Simple payback: normal target for project approval is 2 years or less
b. Net present value (NPV): approval requires at least that NPV > 0
c. Internal rate of return (IRR): project approval requires that IRR at least exceed the firms minimum acceptable return, or hurdle rate, of 20%

2). A new marketing program, costing $1,000,000, which is expected to increase current sales of $10,000,000/year by 20% for the next 3 years only. The current contribution margin of 40% will remain in effect even with this sales increase. Calculate the following methods for this case
a. Simple payback: normal target for project approval is 2 years or less
b. Net present value (NPV): approval requires at least that NPV > 0
c. Internal rate of return (IRR): project approval requires that IRR at least exceed the firms minimum acceptable return, or hurdle rate, of 20%

3). Launching a new product will cost $700,000; the product is expected to sell for $60/unit at a volume of 10,000 units/year for 3 years, at a 50% contribution margin. Calculate the following methods for this case
a. Simple payback: normal target for project approval is 2 years or less
b. Net present value (NPV): approval requires at least that NPV > 0
c. Internal rate of return (IRR): project approval requires that IRR at least exceed the firms minimum acceptable return, or hurdle rate, of 20%

The firm's overall cost of capital is 15%.

Solution Summary

The solution deals with issues in finance: Internal rate of return, Net present value and payback period calculations.

Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12%.
a) What's the project's NPV?
b) What's the project's IRR?
c) What's the project's MIRR?
d) What's the project's payback?
e) What's the project's discounted payback?

Dream Inc. is considering two projects with the following after-tax cash flows
Expected net cash flows
Time Project A Project B
0 ($30) ($30)
1 $5 $20
2 $10 $10
3 $15 $8
4 $20 $6
Either venture would be funded with 40% equity and 60% debt. The cost of debt is 8%. The company has a beta of 1.5, the risk-free r

14. Given the following cash flows and a cost of capital of 14%, calculate
a. Payback period
b. NetPresent Value
c. Internal Rate of Return
d. MIRR.
TIME ATCF
0 -160
1 +200
2 + 45
3 +200
4 +100
5 + 50
Should we undertake this project? Why?

Project SS costs $52,125, its expected net cash flows are $12,000 per year for 8 years, its WACC is 12%.
What is the project's NPV?
IRR?
MIRR?
Payback Period?
Discounted Payback Period?
(Show calculations)

(10-1)
NPV
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project's NPV (Hint: Begin by constructing a time line.)
(10-2)
IRR
Refer to Problem 10-1. What is the Project's IRR?
(10-3)
MIRR
Refer to Problem 10-1 What is t

1. "You say stock price equals the present value of future dividends? That's crazy! All the investors I know are looking for capital gains."
2.. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate."
3. "I like the payback rule. As long as the minimum payback period is short, t

7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are:
Initial investment $150 Million
Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no s