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Student’s Name Professor’s Name Subject DD Month YYYY MANAGERIAL FINANCE TASK 2: PROJECT EVALUATION Question 1 NPV. Rate 12.5% Year 0 1 2 3 4 5 Cash Flows $ (2 400 000.00) $ 1 040 000.00 $ 600 000.00 $ 965 000.00 $ 550 000.00 $ 700 000.00 Discount Factor 1.00 0.89 0.79 0.70 0.62 0.55 Present Value $ (2 400 000.00) $ 924 444.44 $ 474 074.07 $ 677 750.34 $ 343 362.29 $ 388 450.27 NPV $408 081 From the calculations the proposed contract by DCL has an NPV of $408 081 which is a positive number. The NPV acceptance rule is that a project to be accepted it should have a positive NPV. Based on the net present value of this contract I would recommend DCL to accept and undertake this project as it will increase forecast or what if the cost of capital changes from 10% to 15% what will NPV become. 4. The concept of risk and return is applied in the appraisal of this project. Investors expect higher returns from high-risk investments than the low-risk investments to compensate them for taking extra risk. In project evaluation a project with a higher risk cannot be evaluated using the same required rate of return as that of a project with a lower risk. Conner Reed adjusted the required rate of return as he deemed it necessary to match the project risk with the projected expected returns. Management can therefore be confident that the extra risk of this new project has been properly included in determining the required rate of return of this project. Works Cited BIBLIOGRAPHY Lloyd-Jones Joanne. Back to basics: Understanding Net Present Value. 27 November 2017. Webpage text. 31 January 2018. <https://www.icas.com/education-and-qualifications/back-to-basics-net-present-value-part-1-student-blog>. [...]
Order Description:
Find out the Project Feasibility based on the data provided in the question and also write an analysis
Subject Area: Finance
Document Type: Proofreading