Using the Payback Method, IRR, and NPV
NO PLAGIARISM, MUST BE ORIGINAL WORK…..
THIS IS A 2 PART ASSIGNMENT, 1 WORD DOCUMENT AND 1 EXCEL DOCUMENT
ALL CALCULATIONS FOR THIS ASSIGNMENT MUST BE DONE ON A SEPARATE EXCEL SHEET WITH APPROPRIATE FORMULAS INCLUDED INTO EACH CELL AS TO SHOW HOW ANSWERS ARE CALCULATED. CALCULATIONS MUST ALSO BE PRESENT WITHIN THE WORD DOCUMENT.
ALL BULLET POINTS MUST BE ANSWERED PRECISELY AND WITH GREAT DETAIL.
THERE IS A WORD COUNT MINIMUM OF 500 WORDS, SO PLEASE STAY ABOVE THAT NUMBER.
Assignment Steps
Resources: Corporate Finance
Create a 500-word memo to management including the following:
Describe the use of internal rate of return (IRR), net present value (NPV), and the payback method in evaluating project cash flows.
Describe the advantages and disadvantages of each method.
Calculate the following time value of money problems:
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%?
What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?
What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?
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?
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.
Calculate the project cash flow generated for Project A and Project B using the NPV method.
Which project would you select, and why?
Which project would you select under the payback method? The discount rate is 10% for both projects.
Use Microsoft® Excel® to prepare your answer.
Note that a similar problem is in the textbook in Section 5.1.
Sample Template for Project A and Project B:
Show all work.
Submit the memo and all calcluations.
Please remember that a separate Excel sheet must be made that shows all calculations with appropriate formulas within the cells. Answers alone are not good enough.
Solution Preview
MEMO
To: Management
From:
Date:
Subject: The IRR, NPV and Payback Method.
The payback method, IRR, and NPV can be used in assessing project cash flows with each technique having its significance, pros, and cons. The payback period is used in assisting investors to know when to analyze the total amount used on their original investments. Net present value is the primary method used when the idea of understanding the worth of money at a given time especially in projects that are long-term.
(953 words)