Bottomline: You are given all the solutions. As a financial manager your objective is to use the capital budgeting tools to determine which project is the best one to accept. Please remember – there is no perfect answer. Some students can choose A while others choose B. The main questions you should consider: 1)What does the investor want or need? 2) Which project will maximize the investor’s wealth? 3) Which project is the best choice in the long run? Once you understand this piece your decision may seem simpler.
Complete the following homework scenario:
Required:Compare the results of the three (3) methods by quality of information for decision making. Using what you have learned about the three (3) methods identify the best project by the criteria of long term increase in value. (You do not need to do further research.) Convey your understanding of the Time Value of Money principles used or not used in the three (3) methods. Review the video titled NPV IRR MIRR for Mac and PC Excel (located at https://www.youtube.com/watch?v=C7CryVgFbBc and previously listed in Week 4) to help you understand the foundational concepts: Scenario Information:Assume that two gas stations are for sale with the following cash flows; CF1 is the Cash Flow in the first year and CF2 is the Cash Flow in the second year. This is the time line and data used in calculating the Payback Period Net Present Value and Internal Rate of Return. The calculations are done for you. Your task is to select the best project and explain your decision. The methods are presented and the decision each indicates is given below.
Three (3) Capital Budgeting Methods are presented:
Summary of the Three (3) Methods: