Reference no: EM132502214

Question 1: Using the template provided, analyze the project 1 with Net Present Value, Internal Rate of Return, Payback Period, and Modified Payback Period.

Question 1: Repeat the NPV, IRR, Payback, and Modified Payback analyses for high and low confidence estimates of the project's net annual positive cash flows.

• Josephine Joline Jones, Chief Financial Office of Jo Jo's Circus has been investigating opportunities to expand her operations.

Project 1: Dancing Horses on Parade

• Requires the purchase and training of thoroughbred Clydesdale horses, estimated to cost $1,931,400 upfront.

• In addition, due to the seasonal and transitional nature of the circus industry, Jo Jo estimates that she will need to dedicate working capital of $38,000 at the beginning of the project. The $38,000 working capital will become available once the project's life is over.

Jo Jo expects the project to yield positive net annual cash flows over the project's expected 8-year life as follows:

End of 1st Year: $320,000
End of 2nd Year: $384,000
End of 3rd Year: $480,000
End of 4th Year: $565,000
End of 5th Year: $685,000
End of 6th Year: $531,000
End of 7th Year: $424,700
End of 8th Year: $340,000

• Although Jo Jo full expects the project to be successful, she believes that the Net Annual Cash Flows may range between 80% and 120% of her estimates above.

• Jo Jo expects to retire and sell the horses at the end of the 8 years for $112,500.

• Jo Jo's investors require 15% return on their invested cash each year. The circus has managed to secure a tax haven such that they do not expect to pay any income taxes over the foreseeable future.