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Creating a NPV & IRR Spreadsheet

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Suppose you own a concession stand that sells hot dogs, peanuts, popcorn, and beer at a ball park. You have three years left on the contract with the ball park, and you do not expect it to be renewed.
Long lines limit sales and profits. You have developed four different proposals to reduce the lines and increase profits.

The first proposal is to renovate by adding another window. The second is to update the equipment at the existing windows. These two renovation projects are not mutually exclusive; you could take both projects. The third and fourth proposals involve abandoning the existing stand. The third proposal is to build a new stand. The fourth proposal is to rent a larger stall in the ball park. This option would involve $1,000 in up-front investment for new signs and equipment installation; the incremental cash flows shown in later years are net of lease payments.
You have decided that a 15% discount rate is appropriate for this type of investment. The incremental cash flows associated with each of the proposals are:

Incremental Cash Flows
Project Investment Year 1 Year 2 Year 3
Add a new window -$75,000 44,000 44,000 44,000
Update existing equipment -50,000 23,000 23,000 23,000
Build a new stand -125,000 70,000 70,000 70,000
Rent a larger stand -1,000 12,000 13,000 14,000

• Using the internal rate of return rule (IRR), which proposal(s) do you recommend?
• Using the net present value rule (NPV), which proposal(s) do you recommend?
• How do you explain any differences between the IRR and NPV rankings? Which rule is better?

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Solution Summary

The solution provides an excel file that allows you to input cash flows and other variables to determine NPV or IRR.

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See Also This Related BrainMass Solution

CFO AND NPV CONCEPT

I need assistance with the attached two part assignment. I have also attached an example Spreadsheet.

References:
http://www.12manage.com/methods_npv.html

Do you think finance departments are the best place to train future CEOs?
Include a discussion of both the pros and cons of hiring a CFO to be CEO. Try to cite at least three articles in your paper in support of your arguments in favor of and against hiring a CFO to be a CEO. Remember to include a reference list and to refer to the articles you use in the body of your paper.
Please read the articles below, which are both available in Proquest.
Brewis, J., (1999), How a CFO can graduate to CEO, Corporate Finance; London.
Picker, I., (1989), Do CFOs Really Make Good CEOs, Institutional Investor; New York.
Concepts of present value and application to certainty cash flow
Note: It is recommended that you use a spreadsheet such as Excel in order to solve the following problems. See example for the computations using Excel spreadsheet here.
1. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $4,700.00 in one year. Account B will be worth $7,900.00 in two years. Both accounts earn 3.8% interest. What is the present value of each of these accounts? What is the present value of the two accounts together?
2. Suppose you just inherited an oil field. This oil field mine is believed to have three years worth of oil deposit. The net income this oil filed is projected to bring you each year for the next three years:
Year 1: $26,000,000
Year 2: $64,000,000
Year 3: $57,000,000
Compute the present value of this stream of income at a discount rate of 6%. You are to arrive at the present value for a whole stream of income, i.e. the total value of receiving all three payments. This is actually the value of the oil filed.
You compute this by computing the present value of each component of the cash flow (each year's proceeds) with regard to the time you receive the amount, and then add together the three present values in order to get the present value of the oil field. (See the example in the spreadsheet).
Now re-compute the present value of the income stream from the gold mine, or the value of the oil field at a discount rate (or cost of capital of the company) of 12%. Re-compute it again using a discount rate of 10%, then at 8%, 6%, 4% and 2%. Compare the present values of the income stream under the different discount rates.
Show your calculations and write a short paragraph with conclusions from the computations.

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