Reference no: EM131740016

Assignment

The purpose of this assignment is to solidify your understanding on the capital budgeting techniques (mainly Net Present Value and Internal Rate of Return). The scores of this assignment will help in assessing the following learning goal of the course: "students successfully completing this course will be able to apply capital budgeting techniques to evaluate long term investment decisions of firm.

Instructions:

You are required to use a financial calculator or spreadsheet (Excel) to solve problems (provided on page 4) on capital budgeting. You are required to complete the following 5 steps (sample questions and solutions are provided for guidance):

(i) Develop the timeline (linear representation of the timing of cash flows)

(ii) Calculate the Internal Rate of Return (IRR)

(iii) Calculate the Net Present Value (NPV) at the following required rates of return:
(a) 3% (b) 4% (c) 8% (d) 9%

(iv) Using IRR and NPV criterion, comment if the project should be accepted or rejected at the following required rates of return:
(a) 3% (b) 4% (c) 8% (d) 9%

(v) Plot the Net Present Value profile (NPV on Y axis and rates of return on X-axis).