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?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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?

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