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The following information relates to Project X:
 Initial capital expenditure $300,000
 Life of project 5 years
 Annual cash inflows $150,000
 Annual cash outflows $70,000

The following information relates to Project Y:
 Initial capital expenditure $250,000
 Life of project 8 years
 Annual cash inflows $60,000
 Annual cash outflows $15,000

Requirements

a) Given the information above, calculate the payback period of each project, to the nearest month, and state which project would be preferred based on this outcome.

The initial capital expenditure for both projects would be funded by 60% equity and 40% debt, requiring a 11% return for equity shareholders and an after tax cost of debt being 6%, with a risk premium of 3%.

b) Using the WACC calculate the Net Present Value of the two projects. Prepare a report explaining whether either project is viable, and which would be preferred.

c) Explain the difference between the terms Net Present Value, Internal Rate of Return and Accounting Rate of Return.

d) Calculate the IRR and ARR of each of the two projects, and make a final decision using all the information gathered above to analyse which project you would recommend to pursue.

Answer this question for me asap.. with Excel if possible..

Quote:

Originally Posted by saqikhan

The following information relates to Project X:
 Initial capital expenditure $300,000
 Life of project 5 years
 Annual cash inflows $150,000
 Annual cash outflows $70,000

The following information relates to Project Y:
 Initial capital expenditure $250,000
 Life of project 8 years
 Annual cash inflows $60,000
 Annual cash outflows $15,000

Requirements

a) Given the information above, calculate the payback period of each project, to the nearest month, and state which project would be preferred based on this outcome.

The initial capital expenditure for both projects would be funded by 60% equity and 40% debt, requiring a 11% return for equity shareholders and an after tax cost of debt being 6%, with a risk premium of 3%.

b) Using the WACC calculate the Net Present Value of the two projects. Prepare a report explaining whether or not either project is viable, and which would be preferred.

c) Explain the difference between the terms Net Present Value, Internal Rate of Return and Accounting Rate of Return.

d) Calculate the IRR and ARR of each of the two projects, and make a final decision using all the information gathered above to analyse which project you would recommend to pursue.

Hi, saqikhan!

Yes, please click on the link that Altenweg provided. Everyone who answers questions here, does so voluntarilly and on their free time. This isn't some sort of computer where people can just expect to submit their homework questions and out comes the answers.

Thanks!