ACC

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Problem 1

Rasmussen College - BUS 330 - Week 6 Assignment
Problem 1
1.	A company is evaluating a project with the following projected cash flow characteristics. Calculate the NPV, IRR and Payback period. Assume the company requires a return greater than 9% for this project and a payback period of less than 5 years to undertake it. Based on your findings should the company undertake the project? Explain.
	Year	Annual Payment	Payback Calculation
	0	($75,000)
	1	$5,000
	2	$25,000
	3	$25,000
	4	$10,000
	5	$50,000
	6	$40,000
a.	NPV:
b.	IRR:
c.	Payback period:
d.

Problem 2

Rasmussen College - BUS 330 - Week 6 Assignment
Problem 2
2.	A company is evaluating between two mutually exclusive projects. The estimated cash flows are indicated below. Calculate the NPV and IRR for both projects. The discount rate related to Project A is 12% and the discount rate related to Project B is 16%. a) Assuming the company is trying to maximize NPV which project should it undertake? b) Assume the company is trying to maximize the IRR, which project should it undertake?
	Year	Project A	Project A
	0	($100,000)	($5,000)
	1	$0	$1,500
	2	$0	$1,500
	3	$0	$1,500
	4	$0	$1,500
	5	$0	$1,500
	6	$250,000	$3,000
	Discount Rate:	12%	16%
	a) NPV:
	b) IRR:

Problem 3

Rasmussen College - BUS 330 - Week 6 Assignment
Problem 3
3.	Below are the relevant financial statement details of a project. Please anwer the subsequent questions.
		Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
	Income Statement:
	Revenues		$300,000	$325,000	$350,000	$375,000	$400,000
	Cost of Goods Sold		($180,000)	($195,000)	($210,000)	($225,000)	($240,000)
	Gross Profit		$120,000	$130,000	$140,000	$150,000	$160,000
	SG&A Author: "Selling, General & Administrative" costs		($30,000)	($32,500)	($35,000)	($37,500)	($40,000)
	Depreciation Expense		($50,000)	($50,000)	($50,000)	($50,000)	($50,000)
	Operating Income		$40,000	$47,500	$55,000	$62,500	$70,000
	Taxes		($16,000)	($19,000)	($22,000)	($25,000)	($28,000)
	Net Income		$24,000	$28,500	$33,000	$37,500	$42,000
	Balance Sheet Items:
	Investments in equipment	($250,000) Author: This represents a cash outflow	$0	$0	$0	$0	$0
	Investment in working capital	($25,000) Author: Negative values represent cash outflows. Positive values cash inflows.	($2,500)	($2,500)	($2,500)	($2,500)	$25,000
	Net Balance Sheet Changes	($275,000)	($2,500)	($2,500)	($2,500)	($2,500)	$25,000
a.	Calculate the projected cash flows.
		Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
	Net Income
	Addback Depreciation
	Net Balance Sheet Changes
	Cash Flows	$ - 0	$ - 0	$ - 0	$ - 0	$ - 0	$ - 0
b.	If the company requires a rate of return of at least 12% should it accept this project?
	Discount rate:
		Author: Type in the discount rate here	Author: This represents a cash outflow	Author: Negative values represent cash outflows. Positive values cash inflows.	Author: "Selling, General & Administrative" costs	NPV:
	Accept or Reject?
c.	Assume the following scenario: i) SG&A increases by 20% in each year, ii) Investment in equipment in Year 0 increases by 50% Should the company accept the project in this scenario? Note, the increase in the initial investment in equipment will require a corresponding change in the Depreciation. The equipment is depreciated in a straight-line and has no value remaining at the end of the project.
	Show details and calculations as needed.