Reference no: EM13828117
Problem:
The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the last few years has been 20%, and HFGC managers believe that 20% is a reasonable figure for the firm's cost of capital. To sustain a high growth rate, the HFGC CEO argues that the company must continue to invest in projects that offer the highest rate of return possible. Two projects are currently under review. The first is an expansion of the firm's production capacity, and the second project involves introducing one of the firm's existing products into a new market. Cash flows from each project appear in the following table.
a. Calculate the NPV, IRR, and PI for both projects.
b. Rank the projects based on their NPVs, IRRs, and PIs.
c. Do the rankings in part bagree or not? If not, why not?
d. The firm can only afford to undertake one of these investments, and the CEO favors the product introduction because it offers a higher rate of return (that is, ahigher IRR) than the plant expansion. What do you think the firm should do? Why?
Year Plant expansion Product introduction
0 -$3,500,000 -$500,000
1 1,500,000 250,000
2 2,000,000 350,000
3 2,500,000 375,000
4 2,750,000 425,000
Additional Information:
The question is about Integrative- Conflicting Rankings. A company named High-Flying Growth Company is measuring two project options for investment. It desires to invest in the highest return offering project. For this purpose, the projects' NPV, IRR, PI are computed.
|
Debt-intensive capital structure
: Present arguments in support of a MNC favoring a debt-intensive capital structure. Present arguments in support of a MNC favoring an equity-intensive capital structure.
|
|
Conduct a competitive and marketing swot-analysis
: Then, conduct a competitive and marketing SWOT-Analysis [Strengths, Weaknesses, Opportunities, and Threats] of the firm.
|
|
Capital budgeting analysis for a us firm
: Conduct your own capital budgeting analysis. Often finance professionals conduct analysis on projects only to have conditions change, and subsequently impacting their analysis.
|
|
Drawbacks to building flood-control dams
: What are some of the drawbacks to building Flood-Control Dams? Explain how a reservoir behind a dam can lower its own capacity for storage and ultimately greatly reduce its effectiveness
|
|
Integrative-conflicting rankings
: The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process
|
|
Translation from a foreign language to english
: The paper's content is jumbled and is partially in second person and uses unusual wording together as if it was a machine translation from a foreign language to English.
|
|
Computation of payback period-net present value
: IRRs Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:
|
|
Case study analysis-heather evans
: The case study is about Heather Evans who is going to be an MBA and has been working through her management career. She worked as a financial analyst at Morgan Stanley between 1979 and 81 and as an assistant to Jackie Hayman during her internship.
|
|
Probabilities of occurrence noted
: Nelson Corporation has made the following forecast of sales, with the associated probabilities of occurrence noted.
|