wk 10 homework

Get perfect grades by consistently using www.assignmentgeeks.org. Place your order and get a quality paper today. Take advantage of our current 20% discount by using the coupon code GET20


Order a Similar Paper Order a Different Paper

Complete the following homework scenario:

Required:

Compare the results of the three (3) methods by quality of information for decision making. Using what you have learned about the three (3) methods, identify the best project by the criteria of long term increase in value. (You do not need to do further research.) Convey your understanding of the Time Value of Money principles used or not used in the three (3) methods. Review the video titled “NPV, IRR, MIRR for Mac and PC Excel” (located at and previously listed in Week 4) to help you understand the foundational concepts:

Scenario Information:

Assume that two gas stations are for sale with the following cash flows: CF1 is the Cash Flow in the first year, and CF2 is the Cash Flow in the second year. This is the timeline and data used in calculating the Payback Period, Net Present Value, and Internal Rate of Return. The calculations are done for you. Your task is to select the best project and explain your decision. The methods are presented and the decision each indicates is given below.

Investment Sales Price CF1 CF2
Gas Station A $50,000 $0 $100,000
Gas Station B $50,000 $50,000 $25,000

Three (3) Capital Budgeting Methods are presented:

    1. Payback Period: Gas Station A is paid back in 2 years: CF1 in year 1, and CF2 in year 2. Gas Station B is paid back in one (1) year. According to the payback period, when given the choice between two mutually exclusive projects, the investment paid back in the shortest time is selected.
    2. Net Present Value: Consider the gas station example above under the NPV method, and a discount rate of 10%:
      • NPV gas station A = $100,000/(1+.10)2 – $50,000 = $32,644
      • NPV gas station B = $50,000/(1+.10) + $25,000/(1+.10)2 – $50,000 = $16,115
    3. Internal Rate of Return: Assuming 10% is the cost of funds. The IRR for Station A is 41.421%.; for Station B, 36.602.

Summary of the Three (3) Methods:

    • Gas Station B should be selected, as the investment is returned in 1 period rather than 2 periods required for Gas Station A.
    • Under the NPV criteria, however, the decision favors gas station A, as it has the higher net present value. NPV is a measure of the value of the investment.
    • The IRR method favors Gas Station A, as it has a higher return, exceeding the cost of funds (10%) by the highest return.
Writerbay.net

Do you need help with this or a different assignment? We offer CONFIDENTIAL, ORIGINAL (Turnitin/LopesWrite/SafeAssign checks), and PRIVATE services using latest (within 5 years) peer-reviewed articles. Kindly click on ORDER NOW to receive an A++ paper from our masters- and PhD writers.

Get a 15% discount on your order using the following coupon code SAVE15


Order a Similar Paper Order a Different Paper