Drexel Manufacturing (DM) is a leading firm in the creation of environmentally safe containers. DM is considering purchasing new technologically advanced equipment that will not only increase production capabilities but also save the firm money on daily operating expenses. The new investment is estimated to cost $5,250,000. It has a five-year useful life. Given the greater speed of the new equipment, you believe units sold would rise by 500,000 and are estimated to sell at $10 each. It costs $5 per unit to produce. You forecast a savings on operating expenses of $500,000 per year. Start-up net working capital is estimated at $300,000. After five-years, you estimate new technology will be available and believe you can sell the current equipment for $425,000. The current tax rate is 25% and the required rate of return is 8.75%. Calculate the payback period, NPV and IRR

Q: Define constant yield method

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Q: Determine the internal rate of return of a project?

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Q: For each of the following, compute the future value.

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Q: Which are the Methods for Finding Rate of Return?

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Q: Does the Analysis Period Equal Project Lives?

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Q: Describe the two forms that the calculation of the payback period can take?

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Q: What is the significance of finding the internal rate of return?

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Q: Explain Target Return on Investment?

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Q: How can we determine the operating margin?

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Q: Consider IRR on Incremental Investment when Initial IRR Flows are equal?

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Q: Payback is best used to evaluate which types of project

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Q: Describe the Incremental B/C-Ratio Analysis?

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Q: What are the Relationship between Yield and Time?

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.