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Back to Agent Attempts: o o keep the heat 03/1 6. Understanding the TRR and NPV rate of retum (TR) methods of investment analysis are interrelated and are sometimes used together to The net present value (NPV) and inter make capital budgeting decisions Consider the case of Ruzry Button Clothing Company: Last Tuesday, Fuzzy Button Clothing Company lost a portion of its planning and financial data when its server and its backup server crashed. The company's CFO remembers that the intemal rate of return (TRR) of Project Omicron is 14.60%, but he can't recall how much Fuzzy Button originally invested in the project nor the project's net present value (NPV). However, he found a note that contained the annual net cash flows expected to be generated by Project Omicron. They are: Year Cash Flow $2,400,000 4.500.000 4,500,000 4,500,000 The CFO has asked you to compute Project Omicron's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would og NPV is zero or the discounted value of its cashindows equals the discounted value of its cash outflows-when th $11,619,856 discounted using the project's IRR The level of risk exhibited by Project Omicron is the samel 220d by the company's average project, which means that Project Omicron's net cash flows can be discounted using .00% desired rate of return $11,119,596 $12.952,056 Given the data and hints, Project Omicron's initial investment is whole dollar and its NPV is (both rounded to the nearest Locke Manufacturing Inc. is analyzing a project with the following projected cash flows: Year 0 1 2 Cash Flow -$1,324,800 300,000 450,000 546,000 360,000 This project exhibits cash flows Locke's desired rate of return is 8.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) O 6.99% 7.43% 8.74% 10.49% Locke's managers are generally conservative, and select projects based solely on the project's modified internal rate of return (MIRR). Should the company's managers accept this independent project? O No You've just learned that the analyst who assembled the project's projected cash Now Information used above didn't know his inflows from his outflows. You Ve reexamined the source data and determined that the revised annual cash flow Information should be Year Cash Flow 0 -51381.250 1 Cory 375,000 -250,000 600,000 400,000 3 4 Again, it Locke's desired rate of return is 8.00, then the projects revised modified internal rate of return (MIRR) should be Round all dollar amounts to the nearest whole dollar, and your fa MIRR value to two decimal places.) IT again, Locke's managers continue to exhibit the general conservatism and select their investment projects based only on the project MIRR should they accept the project? You've just learned that the analyst who assembled the project's projected cash now information used above didnt know his innows from this outflows. You ve reexamined the source data and determined that the revised annual cash Now Information should be Year Cash Flow $1,381,250 375,000 -250,000 600,000 400,000 Again, it Locke's desired rate of return is 8.00%, then the project's revised modified internal rate of return (MIRR) should be Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) It again, Locke's managers continue to exhibit their general conservatism and select their investment projects based only on the project's MIRR, should they accept the project? O NO O Yes 10. Cashflow patterns and the modified rate of return calculation Locke Manufacturing Inc. is analyzing project with the following projected cash nows: Year Cash Flow $1,324,800 300,000 450,000 546,000 360,000 This project exhibits cash Hows. Locke's desired rate of return is 8.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modified Internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) O 6.99% O 7.43% O 8.74% 0 10.49% Locke's managers are generally conservative, and select projects based solely on the project's modified internal rate of return (MIRR). Should the company managers accept this independent project? O No OY Last Tuesday, Fuzzy Button Clothing Company lost a portion of its planning and financial data when its server and its backup server crashed. The companys CFO remembers that the internal rate of retum (TRR) of Project Omicron is 14.60%, but he can't recall how much Fuzzy Button originally Invested in the project nor the projects net present Value (NPV). However, he found a note that contained the annual net cash flows expected to be generated by Project Omicron. They are: Year 1 2 3 4 4 4 4 Cash Flow $2,400,000 ,500,000 ,500,000 ,500,000 The CFO has asked you to compute Project Omicron's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. The level of risk exhibited by Project Omicron is the same as that exhibited by the company's average project, which means that Project Omicron's net cash Nows can be discounted using Puzzy Button's 7.00% desired rate of return. and its NPV IN (both rounded to the rest Given the data and hints, Project Omicron's initial investment is whole dollar) 10. Cashflow patterns and the modified rate of return calculation Locke Manufacturing Inc. is analyzing a project with the following projected cash flows: Year Cash Flow -$1,324,800 300,000 450,000 546,000 360,000 This project exhibits cash flows. Locke's desired rate of return is 8.00%. Given the cash flows expected from the company's new project, compute the project's anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) O 6.999 O 7.43% O 8.74% 10.499 10.49 Lockey managers are generally conservative, and select projects based solely on the project's modified internal rate of return (MIRR). Should the company's managers accept this independent project? O NO projectes can now in You ve just learned that the analyst who assembled the project's projected cash flow information used above didn't know his inflows from his outflows. You Ve reexamined the source data and determined that the revised annual cash now information should be: Year Cash Flow -S1.381 250 375,000 -250,000 600,000 400,000 Again, if Locke's desired rate of return is 8.00, then the project's revised modified internal rate of retum (MIRR) should be Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.) Hint I again, Locke's managers continue to exhibit their general conservatism and select their investment projects based only on the project's MIRR, should they accept the project? O No 0 Yes Grade it Now Sam & CONS

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