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Unit VII Assessment (capital budgeting)

Coursework Instructions:
(Part 1) Using a 5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer. Project 1 Initial Invest= $500,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10. Project 2 Initial Invest= $1,000,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10. Project 3 Initial Invest= $800,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10. (Part 2) Assuming a budget of $1,200,000 what are your recommendations for the three projects in the above problem. Explain. Assuming a budget of $2,000,000 what are your recommendations for the above problem? Explain.
Coursework Sample Content Preview:

Unit VII Assessment
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PART 1
Various formal methods are usable in capital budgeting and in ensuring that suitable decisions are made in establishing viable projects to invest. These analysis methods are; Net Present value (NPV), Internal Rate of Return (IRR) and Payback Period (PBP).
NPV is usable in estimating the value of potential project through valuation of discounted cash flow. On the other hand, the International rate of return abbreviated is the rate of discount that offers a zero to the net present value. This is regularly fit for measuring the efficiency of investment. Last, the payback period refers to time needed for the return on a certain investment in order to repay the amount of the initial investment. Therefore, in this paper, I will analyze 3 projects and rank them according to viability and later make decisions.
PROJECT 1YEAR Cash flow in $  Cumulative cash flow Discount rate@5% Present Value=Cash flow*Discount rate 1 100,000.00  100,000.00 0.9524 95,240.00 2 100,000.00  200,000.00 0.9070 90,700.00 3 100,000.00  300,000.00 0.8638 86,380.00 4 100,000.00  400,000.00 0.8227 82,270.00 5 100,000.00  500,000.00 0.7835 78,350.00 6 50,000.00  550,000.00 0.7462 37,310.00 7 50,000.00  600,000.00 0.7107 35,535.00 8 50,000.00  650,000.00 0.6768 33,840.00 9 50,000.00  ...
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