Skip to main content

RWE Enterprises Pty Ltd is a small manufacturing

Managerial Finance Task 2: Project Evaluation

Question 1 (10 marks)

RWE Enterprises Pty Ltd is a small manufacturing firm located in Brisbane. RWE is considering setting-up a new plant. The plant has an upfront cost of $3 million. The proposed plant will have a life of 10 years at the end of which it can be sold for an after-tax scrap value of $200,000. The management estimates that the new plant will add 700,000 to after-tax profits during each year of its life. Midway through its life, that is, at the end of 5 years, the plant will have to be refurbished at a cost of $2 million.

  1. What are the full 10 year cash flows associated with the plant? That is, make a cash flow diagram showing the yearly cash flows from year 0 to 10.

  2. If RWE uses a 10% discount rate to evaluate investments of this type, what is the net present value of the project? What does this NPV indicate about the potential value RWE might create by purchasing the new production line? Explain.

  3. Calculate the internal rate of return and profitability index for the proposed investment. What do these two measures tell you about the project’s viability? Explain.

  4. Calculate the payback period for the proposed investment. Interpret your findings.

Question 2 (10 marks)

Jason Katz graduated from University of the Sunshine Coast in December and has started working for Innovative Investments. When Jason arrived at work on Monday morning, he found the following memo on his desk

“To: Jason Katz, Financial Analyst

From: George Adams, CFO

RE: Project Evaluation

Provide an evaluation of two proposed projects with the following cash flow forecasts:

Project A

Project B

Initial Outlay

(275000)

(275000)

Year 1

50000

100,000

Year 2

75000

100,000

Year 3

100,000

100,000

Year 4

125,000

100,000

Year 5

175,000

100,000

The company requires a rate of return on both projects equal to 12%. As you are no doubt aware, we rely on a number of criteria when evaluating new investment opportunities. In particular, we require that projects that are accepted have a payback of no more than three years, provide a positive NPV and have an IRR that exceeds the firm’s discount rate.

Give me your thoughts on these two projects by 9 am tomorrow morning.”

Jason was not surprised by the memo, for he had been expecting something like this for some time. Innovative Investments followed a practice of testing each new financial analyst with some type of project-evaluation exercise after the new hire had been on the job for a few months.

After re-reading the memo, Jason decided on his plan of attack. Specifically, he would first do the obligatory calculations of payback, NPV and IRR for both projects. Jamie knew the CFO would grill him thoroughly on Tuesday morning about his analysis, so he wanted to prepare well for the experience. One of the things that occurred to Jason was that the memo did not indicate whether the two projects were independent or mutually exclusive. So, just to be safe, he thought he had better rank the two projects in case he was asked to do so tomorrow morning. Jason sat down and made up the following ‘to do’ list:

(a) Calculate payback, NPV and IRR for both projects.

(b) Evaluate the two projects’ acceptability using all three decision criteria (listed above) and based on the assumption that the projects are independent. That is, both could be accepted if both are acceptable.

(c) Rank the two projects and make a recommendation as to which (if either) project should be accepted under the assumption that the projects are mutually exclusive.

Assignment—Prepare Jason’s evaluation for his Tuesday meeting with the CFO by filling out your response



Logo GET THIS PAPER COMPLETED FOR YOU FROM THE WRITING EXPERTS  CLICK HERE TO ORDER 100% ORIGINAL PAPERS AT PrimeWritersBay.com

Comments

Post a Comment

Popular posts from this blog

Should pit bull terriers be banned in my community

 Discussion Forum: Counterarguments (Should pit bull terriers be banned in my community) You created a question about the topic for your W6 Rough Draft. For this discussion, you will give an answer to that question in the form of a thesis statement. "Dieting Makes People Fat" Main Post: Share your thesis statement with your classmates. Please note: As with last week’s discussion, nothing here is set in stone. Be open to changing everything about your topic, including your position and audience, as you research it and get feedback from your classmates. Topic + Position/Purpose + Supporting Points =Thesis Statement Example: Suppose the question you posed in the Week 5 discussion was something like, “Should pit bull terriers be banned in my community?” After doing some preliminary research, you have concluded that pit bulls, if raised properly, are no more dangerous than other breeds of dogs. Your thesis statement can be something like, “Pitbulls should not be banned
Post a Comment
Read more

CYBER SECURITY and how it can impact today's healthcare system and the future

 Start by reading and following these instructions: Create your Assignment submission and be sure to cite your sources, use APA style as required, and check your spelling. Assignment: Recommendations Document Due Week 6 (100 pts) Main Assignment Recommendations Document The 1250 to 1500-word deliverable for this week is an initial draft of your recommendations. Note that this is a working document and may be modified based on insights gained in module eight and your professor's feedback. This document should contain the following elements: Summary of your problem or opportunity definition A list of possible recommendation alternatives. In this section, you are not yet at the point of suggesting the best set of recommendations but you are trying to be creative and explore all the different ways that the problem or opportunity might best be addressed. The end result here will be a list of alternatives among which you will choose your final recom
Post a Comment
Read more

Do violent video games encourage players to become violent in real life?

 Write an outline for Speech 3, the persuasive belief speech, following the outline guidelines and formatting requirements (Do violent video games encourage players to become violent in real life?).  1000-1200 WORDS https://virtualspeech.com/blog/persuasive-speech-outline-structure-delivery Topics: https://blog.prepscholar.com/good-persuasive-speech-topics Do violent video games encourage players to become violent in real life? https://www.youtube.com/watch?v=YKKWOx43pIY WE HAVE DONE THIS ASSIGNMENT BEFORE, WE CAN ALSO DO IT FOR YOU GET SOLUTION FOR THIS ASSIGNMENT,  Get Impressive Scores in Your Class CLICK HERE TO MAKE YOUR ORDER   on Do violent video games encourage players to become violent in real life? Are You looking for Assignment and Homework Writing help?  We Provide High-Quality Academic Papers at Affordable Rates. No Plagiarism. TO BE RE-WRITTEN FROM THE SCRATCH
Post a Comment
Read more