Initial Investments

NO PLAGIARISM

FOLLOW THE INSTRUCTIONS

Purpose of Assignment

The purpose of this assignment is to allow the student to calculate the project cash flow using net present value (NPV), internal rate of return (IRR), and the payback methods.

VERY IMPORTANT – TWO SUBMISSIONS ARE REQUIRED FOR THIS ASSIGNMENT

Step 1 – (Submit as a WORD document in APA format)

Create a memo to management. Memo must include the four main headings (To, From, Date & Subject). Word has templates that you can download. Use a business or professional template. Your outline for your paper should look similar to the following:

· Intro

· Internal Rate of Return (include description of method, advantages & disadvantages)

· Net Present Value (include description of method, advantages & disadvantages)

· Payback Method (include description of method, advantages & disadvantages)

· Conclusion

· References

Each point above should be a paragraph containing 4-5 sentences, with the exception of the references page. There are required references for each assignment. Those are given to you below. So, all you need to do is copy, paste and then proceed to double-space, alphabetize and format into a hanging indent. You should not need to use other references. But if you do, format those using the Reference and Citation Generator Tool (see link below).

Minimum required references include your textbook. The textbook reference is as follows:

Ross, S., Westerfield, R., Jaffe, J. & Jordan, B. (2016). Corporate finance (11th edition).

Step 2 – (Submit as an EXCEL spreadsheet)

Calculate the following time value of money problems. The calculations must be done in Excel. You mustshow your work. If you submit these in Word, you will not receive credit. If you do not show your work, you will not receive credit. Examples are provided above for review prior to starting this assignment. FOLLOW MY EXAMPLES!

  1. If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?
  2. What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?
  3. What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?
  4. If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?
  5. What is the rate of return required to accumulate $400,000 if you invest $10,000 per year for 20 years. Assume all payments are made at the end of the period.
  6. See table below. What is the project cash flow generated for Project A and Project B using the NPV method? Which would you choose and why? Assume a 10% discount rate.
  7. See table below. What is the payback period for Project A and Project B using the payback method? Which would you choose and why?
table row blank cell bold italic I bold italic n bold italic i bold italic t bold italic i bold italic a bold italic l bold space bold italic I bold italic n bold italic v bold italic e bold italic s bold italic t bold italic e bold italic m bold italic e bold italic n bold italic t end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 1 end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 2 end cell cell bold italic Y bold italic e bold italic a bold italic r bold space bold 3 end cell row cell bold italic P bold italic r bold italic o bold italic j bold italic e bold italic c bold italic t bold space bold italic A end cell cell left parenthesis 10 comma 000 right parenthesis end cell cell 5 comma 000 end cell cell 5 comma 000 end cell cell 5 comma 000 end cell row cell bold italic P bold italic r bold italic o bold italic j bold italic e bold italic c bold italic t bold space bold italic B end cell cell left parenthesis 55 comma 000 right parenthesis end cell cell 20 comma 000 end cell cell 20 comma 000 end cell cell 20 comma 000 end cell end table

“Table shows investments and returns for Project A and Project B. Project A has $10,000 initial investment with $5,000 returns in each of the first 3 years. Project B has $55,000 initial investment with $20,000 in each of the first 3 years.”

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