Reference no: EM131189089 , Length: 5500 words

Financial Management

Select a firm of your choice and explain how it determines the after-tax cash flows for the projects the firm undertakes.We can learn by analyzing the capital budgeting techniques.

Assignment guideline

The assignment should be divided into the following key areas:

            Introduction:

• Introduction to the firm you have chosen for your assignment.
• Cash Flows of the firm

Body of Assignment:

1.    Project Evaluation and Selection

i.              Payback Period (PBP)

ii.            Internal Rate of Return (IRR)

iii.           Net Present Value (NPV)

iv.           Profitability Index (PI

2.     Potential Difficulties

3.     Capital Rationing

4.     Project Monitoring

5.     Post-Completion Audit

Discuss the key questions after calculating the above.

1. Discuss the payback period (PBP) method of project evaluation and selection, including its: (a) calculation; (b) acceptance criterion; (c) advantages and disadvantages; and (d) focus on liquidity rather than profitability.
2. Discuss the three major discounted cash flow (DCF) methods of project evaluation and selection - internal rate of return (IRR), net present value (NPV), and profitability index (PI).
3. Explain the calculation, acceptance criterion, and advantages (over the PBP method) for each of the three major DCF methods.
4. Define, construct, and interpret a graph called an "NPV profile."
5. Discuss why ranking project proposals on the basis of IRR, NPV, and PI methods "may" lead to conflicts in ranking.
6. Describe the situations where ranking projects may be necessary and justify when to use either IRR, NPV, or PI rankings.
7. Understand how "sensitivity analysis" allows us to challenge the single-point input estimates used in traditional capital budgeting analysis.
8. Explain the role and process of project monitoring, including "progress reviews" and "post-completion audits."

Conclusion:

• Conclusion and recommendation and limitations.

Format Requirement:

Please refer and implement the format guide lines below for this assignment:

The assignment must be electronically prepared

Use a default margin for the paper with font Times New Roman or Arial, size 12, and line spacing 1.5

Total minimum number of words is 5500. (Introduction 1000, Body 4000, Conclusion and Recommendation 500).