Anita(empressPayne_Week 3 IA_Student

Weighted Scoring Model (Buying a new home) Factors Home-1 Home-2 Home-3 School District 5 90 100 70 Proximity to highways 4 80 90 60 Safety 5 100 80 80 Kid Friendly 3 50 80 100 COMPOSITE SCORE = 1420 1500 1290 Discounted Cash Flow (Rental apartment building) Interest rate/Cost of capital = 12% Present = Beginning of year 2021 Annual inflation rate = 1.50% Investment Net Profit PV (no infl) PV (infl) Cuml (no infl) Cuml (infl) Beginning of 2021 $1,000,000 ($1,000,000) ($1,000,000) ### ($1,000,000) ($1,000,000) Beginning of 2022 $290,000 $258,929 $255,507 $258,929 $255,507 Beginning of 2023 $310,000 $247,130 $240,641 $506,059 $496,148 Beginning of 2024 $380,000 $270,476 $259,894 $776,535 $756,042 Beginning of 2025 $400,000 $254,207 $241,033 $1,030,742 $997,075 Beginning of 2026 $490,000 $278,039 $260,146 $1,308,782 $1,257,220 NPV = $308,782 $257,220 QUICKER METHOD: USE AN EXCEL FORMULA!! $308,782 $257,220 Internal Rate of Return = 22.73% (IRR) Return on Investment (ROI) not considering inflation= 30.878% Type the value in cell B22 into cell C11. What happens to cell F20 and F21? Why does this happen? Weight ( 1- 5 scale) Copyright © 2017 Joseph G. D'Mello Investment is covered (payback) in 2025 (inflation n considered) and in 2026 (inflation considered)

Weighted Scoring Model (Selecting a Project) Factors Project-1 Project-2 Project-3 Project-4 Profitability 9 70 80 60 90 Technology advantage 7 80 20 40 60 Revenue growth 8 90 40 80 50 Long-term strategic fit 6 70 80 60 60 Sustainability factor 8 40 90 80 90 COMPOSITE SCORE = 2650 2380 2460 2710 6 Discounted Cash Flow (Project) Interest rate/Cost of capital = 10% Present = Beginning of year Annual inflation rate = 2.25% Investment Net Profit Investment Net Profit PROJECT 1 PROJECT 2 Beginning of 2022 $2,200,000 ($2,200,000) $3,280,000 ($3,280,000) Beginning of 2023 $300,000 $400,000 Beginning of 2024 $650,000 $1,200,000 Beginning of 2025 $975,000 $1,000,000 Beginning of 2026 $1,230,000 $2,085,000 NPV (no infl) = $182,556 NPV (no infl) = $250,770 NPV (infl) = $47,237 NPV (infl) = $49,049 IRR = 13.08% IRR = 12.83% ROI (no infl) = 8.30% ROI (infl) 7.65% 2 1 Mar-25 25-Feb Weight (1 - 10 scale) If projects are selected based on NPV, would you choose Project 1 or Project 2? If projects are selected based on IRR, would you choose Project 1 or Project 2? Not considering inflation, in which year is Project 1's investment recovered? Hint: Don't calculate! Use NPV formula a few ti Not considering inflation, in which year is Project 2's investment recovered? not