The Tech company. Inc. is currently making windfall profits from the sales of financial programming software, so the company is looking for new investment opportunities to invest the profits and maintain its growth. The firm decided to undertake one of these two projects. Project A: invest in the development and improvement of the already existing software (create a new version) Project B: launch into the manufacture of computer equipment (external hard drives) The cash flow projections for the two projects are as follows: 0 1 2 3 4 I0 FM1 FM2 FM3 FM4 Project A 100,000 60,000 40,000 30,000 20,000 Project B 350,000 60,000 100,000 130,000 160,000 The rate of return required by senior management is 10% 1. Calculate simple payback period and discounted payback period, and give your recommendation, if the maximum period acceptable to senior management is 3 years? 2. Calculate the NPV (net present value) of each project and give your recommendation? 3. Calculate the ACR (average accounting return) for each project and give your recommendation? 4. Calculate the IR profitability index for each project and give your recommendation? 5. Calculate the IRR internal rate of return for each project and give your recommendation? 6. Calculate the integrated internal rate of return TRII for each project and give your recommendation, if the reinvestment rate is 5% annually? 7. What is the dominant criterion and which project would you recommend according to this criterion?
Question 4 (Only answer to question 4 to 7)
The Tech company. Inc. is currently making windfall profits from the sales of financial programming software, so the company is looking for new investment opportunities to invest the profits and maintain its growth. The firm decided to undertake one of these two projects.
Project A: invest in the development and improvement of the already existing software (create a new version)
Project B: launch into the manufacture of computer equipment (external hard drives)
The cash flow projections for the two projects are as follows:
|
|
0 |
1 |
2 |
3 |
4 |
|
|
I0 |
FM1 |
FM2 |
FM3 |
FM4 |
|
Project A |
100,000 |
60,000 |
40,000 |
30,000 |
20,000 |
|
Project B |
350,000 |
60,000 |
100,000 |
130,000 |
160,000 |
The
1. Calculate simple payback period and discounted payback period, and give your recommendation, if the maximum period acceptable to senior management is 3 years?
2. Calculate the NPV (
3. Calculate the ACR (average accounting return) for each project and give your recommendation?
4. Calculate the IR profitability index for each project and give your recommendation?
5. Calculate the IRR
6. Calculate the integrated internal rate of return TRII for each project and give your recommendation, if the reinvestment rate is 5% annually?
7. What is the dominant criterion and which project would you recommend according to this criterion?
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