风味小吃店Name: Yi Ru 1077406
Class: FINC501-M01
Assignment of mini ca
October 27, 2015
A. What is capital budgeting?
Capital budgeting is the whole process of analyzing projects and deciding which ones to accept and thus include in the capital budget.
B. What is the difference between independent and mutually exclusive projects?
Independent projects means that I have so much money that I can invest a lot of projects at the same time. So if the profits are higher than my expectation, I will invest it. Mutually exclusive projects means that my money is limited so I must choo the best one of the investments. If I choo the one of them, I cannot choo others at all.
C. (1) Define the term NPV. What is each franchi’s NPV?
The rationale of the NPV method is defined as the prent value of a project’s expected cash flows discounted at the appropriate risk-adjusted rate.
The Franchi L’s NPV is $18.7829.
The Franchi S’s NPV is $19.9850.
(2) What is the rationale behind the NPV method? Acoording to NPV, which franchi or franchis should be accepted if they are independent? Mutually exclusive?
The NPV method help us know the prent value of future cash flows are equal to investment which is made today. If the NPV more than zero, it will be worthy investing. If they are independent, both of them should be invested becau the NPVs of them are positive. If they are Mutually exclusive, the Franchis S should be invested duo to its higher NPV.
(3) Would the NPVs change if the cost of capital changed?
Yes, if the cost of capital goes up, the NPVs will go down. 穷的反义词
D. (1) Define the term IRR. What is each franchi’s IRR?
IRR is the rate of return when NPV=0.
The Franchi L’s IRR is 18.1258%.
The Franchi S’s IRR is 23.5641%.
(2) How is the IRR on a project related to the YTM on a bond?
They are the same thing. If you invest in the bond, the YTM of the bond is the IRR.
(3) What is the logic behind the IRR method? According to IRR, which franchis should be accepted if they are independent? Mutually exclusive?
IRR measures a project’s profitability in the rate of return n: if a project’s IRR equals its cost of capital, then its cash flows are just sufficient to provide investors with their requ
ired rates of return. If they are independent, both of them should be invested becau the IRRs of them are both higher than 10%. If they are mutually exclusive, Franchi S should be invested due to its higher IRR.
(4) Would the franchis’ IRRs change if the cost of capital changed?
No, IRRs are independent of the cost of capital.
E. (1) Draw NPV profiles for Franchis L and S. At what discount rate do the profiles cross?
The data of the curve shows below.
狐白裘 R | 中考英语语法NPVL | NPVS |
0.00% | $50.00 | $40.00 |
5.00% | $31.48 | $27.90 |
10.00% | $17.08 | $18.17 |
15.00% | $5.80 | $10.28 |
20.00% | -$3.09 | 高考对联$3.86 |
| | |
IRRS=23.6%
IRRL=18.1%
Crossover point意境很美的句子
X=8.7%
The discount rate is 8.7% when crossing .
(2)Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which franchi or franchis should be accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any cost of capital less than 23.6%?
If they are independent, L should be accepted when its cost of capital less than 18.1% and S should be accepted when its cost of capital less than 23.6% where the NPV is more than zero. If they are mutually exclusive, L should be invested when its cost of capital less than 8.7% where the NPV of L is higher and S should be invested when its cost of capital more than 8.7% where.the NPV of S is higher.
F. What is the underlying cau of ranking conflicts between NPV and IRR?
①The different scale of two projects
②Cash flows differ in terms of time pattern of their cash flows
G. Define the term modified IRR (MIRR). Find the MIRRs for Franchis L and S.
MIRR is that discount rate which equates the prent value of the terminal value of the inflows, compounded at the cost of capital, to the prent value of the cost.
暖作文
The MIRR for Franchis L is 16.4959%. qq密码大全
The MIRR for Franchis S is 16.8876%.
H. What does the profitability index (PI) measure? What are the PIs of Franchis S and L?
PI measures the “bang for the buck”.
PI of L is 1.1879.
PI of S is 1.1998.
I. (1) What is the payback period? Find the paybacks for Franchis L and S?
PBP is the number of years required to recover a project’s cost, or how long does it take to get the business’s money back?
