Calculate the intemal rate of return of the project

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Reference no: EM133506525

Financial Management

Case Study 1
What are the four core decisions made by a business? Explain how they are interrelated with each other with examples. Research an Australian company that is listed in the Australian Securities Exchange (ASX) and identify the four decisions made by the company in 2022. (Word limit: 500 words)

Case Study 2
Dr Marina Khan received a payment of $500,000 from her grandmother's estate on what is coincidentally her 63rd birthday. Marina invested the entire inheritance amount today at an interest rate of 8% pa (compounded monthly) due to mature on her 70'" birthday when she plans to retire.

Upon retirement Marina plans to commute her investments to a monthly pension which she plans to receive until her 90th birthday. During these 20 years of post-retirement Marina estimates that she will require an annual pension income of $84,000 ($7,000 per month) in order to live in the manner to which she is accustomed. She expects to receive her first monthly pension payment 1 month after her 70th birthday. In addition, Marina would like to have a remaining balance of $200,000 in her account at the conclusion of her 20-year pension. Marina believes during these 20 years of post retirement the interest rate will be 6% pa (compounded monthly).

Marina understands that the $500,000 inheritance she has invested will not achieve all of these things and wants to invest an additional monthly amount during the next 7 years leading to her planned retirement.

Calculate how much Dr Khan needs to invest (starting in one month's time) in order to achieve her investment goals.

This is a multi-part question that requires careful planning and the development of timelines is recommended (show all workings).Marks are awarded based on the design and structure of the answer provided, a demonstrated understanding of the types of financial problems involved and the formula used to solve them. and the accuracy of the calculated answer.

Case Study 3
Argi-zone Ltd has recently completed a comprehensive $250,000, two-year market research project into the feasibility of their innovative new irrigation pump designed for use in the Murray Darling Irrigation basin. The pump was developed as part of the ongoing research and development at the company in which more than $500,000 was spent developing and testing the prototype. The pump is innovative because it draws large volumes of water but avoids killing large numbers of native fish through use of a patented filter system. It is planned that the pump will be manufactured in a purpose-built manufacturing facility.

The market research report found that 2,500 units of the patented irrigation pump could be sold annually over the next ten years at a price of $20,000 each, and installation cost will be $7,500 per pump. Fixed costs are estimated to be $20 million pa. The initial outlay will include $50 million to build production facilities and $5 million for land where the factory will be sited. The $50 million facility will be depreciated using the prime cost method over the project's 10-year life (fully depreciated at the end of the project). The land will not be depreciated and the price of the land is expected to remain unchanged. At the conclusion of the project the land and facilities will be sold for an estimated value of $10 million.

Assume all cash flows after initial outlay occur at the end of each year. The company tax rate is 30%. Their required payback is 3 years and required rate of return is 15%.

As a financial manager of the company, you're conducting a capital budgeting analysis of this project.

a. Calculate the incremental cash flows for each year (Yo to `no inclusive).

b. Calculate the payback period of the project. (Show answer correct to two decimal places.)

c. Calculate the net present value, that is, the net benefit or net loss in present value terms of the project. (Show answer correct to the nearer cent.)

d. Calculate the present value index of the project. (Show answer correct to four decimal places.)

e. Calculate the discounted payback period of the project. (Show answer correct to two decimal places)

f. Calculate the intemal rate of return of the project using 'trial & error and interpolation' method. (Show answer correct to four decimal places)

g. Evaluate under each criterion (that you calculated above) and overall if the company should accept this project or not. (Word limit 500 words)

Reference no: EM133506525

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