Assignment 4
aobuld1
assignment_details.docxPlease read the following three items before beginning Assignment #4.
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Item #1:
Students typically asked about the assignment's columns in the table, so I wanted to remind everyone that the obvious answer is not always the best way to proceed. After all, this is an MBA assignment; so, a bit more analysis than just pulling one column from the table is required to get the right answer.
Remember: As you learned in the first half of the class, Net Income and Cash Flow are not the same thing because some expenses that reduce taxable net income have no impact on cash flows.
Keep this in mind as you use the assignment's data and information to arrive at a set of annual figures you will use to calculate the two paybacks (Nominal and Discounted), Net Present Value (NPV), and Internal Rate of Return (IRR).
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Item #2:
Remember, the grading of the narrative section is based on whether or not your recommendations are relevant or "fit" the figures you calculated in Parts 1 & 2.
Even if your figures are not completely correct, it is still possible to get full credit for your recommendations!....so long as they are consistent with the figures.
In the real world, you will never have perfect information....let alone all of the information you would prefer to have when a decision is needed. Therefore, you must learn to make the best decision(s) possible with whatever information/data you have on hand at that moment in time!
Therefore, for this assignment, when composing the narrative section regarding the three different types of corporate structures and whether or not she should move forward with the project, just base your recommendations on the numbers you calculated.
In regards to how much to write, keep in mind that this section is worth 30% of your overall grade.....67.5 points!
As such, 4-5 sentences on each scenario is not enough for full credit in an MBA-level paper!
So, please be sure to fully develop your recommendations/approaches for each corporate structure as if you were in the same situation. What should you do? What are the short term implications? What are the long term implications?
This part of the assignment does not have to be a formal Word document. However, please use either Section Headings or an obvious initial sentence (If CCI were a privately owned company, this project.....) to clearly distinguish your discussions.
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Item #3:
Students who are not comfortable with Excel ask about how to do the IRR. When it comes to calculating IRR, if you do not plan to use Excel, look for IRR tools on the Web. They will typically ask you for a Beginning or Year O figure... and then the net figures (negative or positive) for each year. Then click [Submit] and it will generate an IRR based on your numbers.
There are many sites available, but one website I just found is.... http://tools.financial-projections.com/IRRInternalRateOfReturn.html
Just add the Investment figure and change the numbers you see there... and it will reveal your IRR at the bottom of the column.
Other than using Excel or the Web, you are going to have to "guess" and manually work your way to the right number.
For example, let's say the right IRR is 3.85% (which it is not). You would need to guess at a starting point and use the table's multipliers for, say, 8%....and discover that the sum of the results is still more than -O-.
Since IRR is the point at which the sum is exactly equal to zero, because we are positive... we used figures that are too high. So, you need to go lower than 8%.
Next, you try 5%....and see it is still above -O-. So, you would then try 3%....and see the result is a negative answer--which says you went too low. So, you would then try 4%....and see the result is nearly -O-.
At this point, you would know that (a) 5% is too high, (b) 3% is too low, and (c) 4% is nearly -O-. As such, 4% is as close as you are going to get without using Excel or a web-based tool to generate the exact IRR.
For your answer on the assignment, you would have to simply state that: The project's IRR is closest to 4%. 3% is to low and results in a negative net present value. 5% is too high and results in a positive net present value.
