Using the Payback Method, IRR, and NPV
The purpose of this assignment is to allow the student to calculate the project cash flow using net present value (NPV), internal rate of return (IRR), and the payback methods.
Assignment Steps *NO Plagiarism and provide checker results**
Resources: Corporate Finance
STEP 1 (SUBMIT AS AN EXCEL SPREADSHEET)
Calculate the following using Microsoft® Excel® . Make sure you show your work as no work equates to no credit.
- If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?
- What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?
- What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?
- If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?
- What is the rate of return required to accumulate $400,000 if you invest $10,000 per year for 20 years. Assume all payments are made at the end of the period.
- What is the project cash flow generated for Project A and Project B using the NPV method? Which would you choose and why? Assume a 10% discount rate.
- What is the payback period for Project A and Project B using the payback method? Which would you choose and why?
Project A and Project B:
STEP 2 (SUBMIT AS A WORD DOCUMENT IN MEMO FORMAT)
Create a MEMO to management that disusses the points below. Make sure you include introduction and conclusion paragraphs that are separate from the body of the paper. Word has templates you can download as it relates to memos.
- Describe the use of internal rate of return (IRR), net present value (NPV), and the payback method in evaluating project cash flows.
- Describe the advantages and disadvantages of each method.
Minimum required references include your textbook. The textbook reference is as follows:
Ross, S., Westerfield, R., Jaffe, J. & Jordan, B. (2016). Corporate finance (11th edition). New York, N.Y. McGraw-Hill Education.
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