- Respond with a text answer to the question to each problem.
- Submit the file that shows your work: Excel, Word, etc.
- Points will be deducted if you just state the answer.
PROBLEM 1. USING AN UNDISCOUNTED PAYBACK PERIOD ANALYSIS, WHICH PROJECT IS BETTER, FROM A CASH FLOW STANDPOINT?
Two new Internet site projects are proposed to a young start-up company.
- Project A will cost $250,000 to implement and is expected to have annual cash flows of $75,000.
- Project B will cost $150,000 to implement and should generate annual cash flows of $52,000.
PROBLEM 2. CALCULATE THE NPV FOR THE FOLLOWING.
A four-year financial project has yearly benefits of $20,000: $25,000: $30,000 and $50,000 in the next four years, starting in Year 1. It will cost $75,000 to implement the project (Year 0). If the required rate of return (DISCOUNT RATE) is 20%, conduct a discounted cash flow calculation to determine the NPV. Assume the cost is recognized on the first day of the project and the incomes at yearly intervals thereafter, starting one year from the project start.
Note- there are several options to solve this problem:
- Use the attached Excel template. or
- Utilize NPV formula for cash flow by hand or use Excel NPV function. Be sure to account for the cash flows by year, as the NPV is different for each.
PROBLEM 3. USE A WEIGHTED SCORE MODEL TO CHOOSE BETWEEN THREE LOCATIONS (A,B,C) FOR SETTING UP A FACTORY.
The relative weights for each criterion are shown in the following table. A score of 1 represents unfavorable, 2 satisfactory, and 3 favorable. You can use the attached template or calculate yourself.
| Location | ||||
| Category | Weight | A | B | C |
| Labor costs | 20% | 1 | 2 | 3 |
| Labor productivity | 20 % | 2 | 3 | 1 |
| Labor supply | 10 % | 2 | 1 | 3 |
| Union relations | 10 % | 3 | 3 | 2 |
| Material supply | 10 % | 2 | 1 | 1 |
| Transport costs | 25 % | 1 | 2 | 3 |
| Infrastructure | 5 % | 2 | 2 | 2 |
