Executive Solution Overview
Needs to be a EXCEL file – ## BTMN634Questions.docx – 291F6570-BE05-4BE3-A99D-0A33CF518918.jpg – B73AC6ED-902A-4C78-BA76-F148D0701464.jpg – F31F8685-7FA6-41F5-87E3-56D0CBDE1945.jpg – 839ACC45-D6B6-4455-9F93-FBE6A6C793C8.jpg – A994665B-958D-40F2-9587-596A445D38F9.jpg – 4EC9B39E-4DA3-4474-A922-B4BD01F…
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Needs to be a EXCEL file
– ## BTMN634Questions.docx
– 291F6570-BE05-4BE3-A99D-0A33CF518918.jpg
– B73AC6ED-902A-4C78-BA76-F148D0701464.jpg
– F31F8685-7FA6-41F5-87E3-56D0CBDE1945.jpg
– 839ACC45-D6B6-4455-9F93-FBE6A6C793C8.jpg
– A994665B-958D-40F2-9587-596A445D38F9.jpg
– 4EC9B39E-4DA3-4474-A922-B4BD01F5BD72.jpg
– EFC33944-E593-40BC-A1C8-B2E74648889B.jpg
– 097675B5-8C5E-4B91-B0BD-7E9AAFC4CBCB.jpg
– 91E3E426-2570-4CD5-A351-827F216DE5F7.jpg
– D3734490-249B-45BA-9D51-646738C5D920.jpg
**## BTMN634Questions.docx**
**Questions**
1. An investment project provides cash inflows of $795 per year for eight years. a) What is the project payback period if the initial cost is $3,500? b) What if the initial cost is $5,000? c) What if it is $6,500?
2. Your firm wants to choose between two project options:
· Project A offers the following opportunity: $450,000 invested today will yield an expected income stream of $145,000 per year for five years, starting in Year 1.
· Project B requires an initial investment of $400,000, but its expected revenue stream is: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.
Assume that a required rate of return for your company is 12% and that inflation is expected to remain steady at 5% for the life of the project. Which is the better investment? Why?
3. Your vice president informs you that she has researched the possibility of automating your organization’s order-entry system. She has projected that the new system will reduce labor costs by $25,000 each year over the next five years. The purchase price (including installation and testing) of the new system is $100,000. The system is expected to have a useful life of five years, after which time it can be sold in the secondary computer systems market for $15,000.What is the net present value of this investment if the discount rate is 8.5% per year?
4. You are considering an investment in a startup that will cost $100,000 but you will receive a cash inflow of $25,000 every year for 5 years from the sale of products the startup will manufacture. The required return is 9%, and payback cutoff is 5 years. a) What is the payback period? b) What is the discounted payback period? (assume 5% discount rate) c) What is the NPV? d) What is the IRR? e) Should we accept the project?
5. Your company is planning to introduce a new online shopping service. To reduce risk, senior management propose developing the service in three stages:
a) A market test for one year with a few customers at a cost of $1 million. The likelihood of success for this test is estimated to be 75%.
b) A introductory period of one year, if the market test is successful. During this test the most widely ordered products will be available through the service to a wider audience. This phase of the project is estimated to cost $2.5 million with have a 50% chance of success.
c) Full roll-out of the service at the end of the second year if the introductory period is successful. This phase is estimated to cost $15 million and is expected to start generating revenue only by the end of the third year.
There are 3 possible outcomes from the full roll out:
| | | | | | |
| — | — | — | — | — | — |
| Outcome | Probability | Year 4 Revenue | Year 5 Revenue | Year 6 Revenue | Year 7 Revenue |
| Huge Success | 25% | $12M | $15M | $18M | $21M |
| Moderate Success | 50% | $7M | $9M | $11M | $13M |
| Failure | 25% | -$3M | -$4M | -$5M | -$6M |
i) Construct a decision tree and list all the outcomes and cumulative probabilities (it may be easier to construct the tree in a different program and copy and paste into Excel)
ii) Assume all the values are present values. Should the company pursue this project based on the expected NPV?
**Grading Rubric**
**What:** An Excel (or similar) file with solutions to the five questions above posted in your Assignments Folder.
**291F6570-BE05-4BE3-A99D-0A33CF518918.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/291f6570-be05-4be3-a99d-0a33cf518918-jpg-10491205)
**B73AC6ED-902A-4C78-BA76-F148D0701464.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/b73ac6ed-902a-4c78-ba76-f148d0701464-jpg-10491199)
**F31F8685-7FA6-41F5-87E3-56D0CBDE1945.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/f31f8685-7fa6-41f5-87e3-56d0cbde1945-jpg)
**839ACC45-D6B6-4455-9F93-FBE6A6C793C8.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/839acc45-d6b6-4455-9f93-fbe6a6c793c8-jpg-10491203)
**A994665B-958D-40F2-9587-596A445D38F9.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/a994665b-958d-40f2-9587-596a445d38f9-jpg-10491215)
**4EC9B39E-4DA3-4474-A922-B4BD01F5BD72.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/4ec9b39e-4da3-4474-a922-b4bd01f5bd72-jpg-10491207)
**EFC33944-E593-40BC-A1C8-B2E74648889B.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/efc33944-e593-40bc-a1c8-b2e74648889b-jpg)
**097675B5-8C5E-4B91-B0BD-7E9AAFC4CBCB.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/097675b5-8c5e-4b91-b0bd-7e9aafc4cbcb-jpg)
**91E3E426-2570-4CD5-A351-827F216DE5F7.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/91e3e426-2570-4cd5-a351-827f216de5f7-jpg-10491213)
**D3734490-249B-45BA-9D51-646738C5D920.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/d3734490-249b-45ba-9d51-646738c5d920-jpg)
**D3734490-249B-45BA-9D51-646738C5D920.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/d3734490-249b-45ba-9d51-646738c5d920-jpg)
**## BTMN634Questions.docx**
**Questions**
1. An investment project provides cash inflows of $795 per year for eight years. a) What is the project payback period if the initial cost is $3,500? b) What if the initial cost is $5,000? c) What if it is $6,500?
2. Your firm wants to choose between two project options:
· Project A offers the following opportunity: $450,000 invested today will yield an expected income stream of $145,000 per year for five years, starting in Year 1.
· Project B requires an initial investment of $400,000, but its expected revenue stream is: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.
Assume that a required rate of return for your company is 12% and that inflation is expected to remain steady at 5% for the life of the project. Which is the better investment? Why?
3. Your vice president informs you that she has researched the possibility of automating your organization’s order-entry system. She has projected that the new system will reduce labor costs by $25,000 each year over the next five years. The purchase price (including installation and testing) of the new system is $100,000. The system is expected to have a useful life of five years, after which time it can be sold in the secondary computer systems market for $15,000.What is the net present value of this investment if the discount rate is 8.5% per year?
4. You are considering an investment in a startup that will cost $100,000 but you will receive a cash inflow of $25,000 every year for 5 years from the sale of products the startup will manufacture. The required return is 9%, and payback cutoff is 5 years. a) What is the payback period? b) What is the discounted payback period? (assume 5% discount rate) c) What is the NPV? d) What is the IRR? e) Should we accept the project?
5. Your company is planning to introduce a new online shopping service. To reduce risk, senior management propose developing the service in three stages:
a) A market test for one year with a few customers at a cost of $1 million. The likelihood of success for this test is estimated to be 75%.
b) A introductory period of one year, if the market test is successful. During this test the most widely ordered products will be available through the service to a wider audience. This phase of the project is estimated to cost $2.5 million with have a 50% chance of success.
c) Full roll-out of the service at the end of the second year if the introductory period is successful. This phase is estimated to cost $15 million and is expected to start generating revenue only by the end of the third year.
There are 3 possible outcomes from the full roll out:
| | | | | | |
| — | — | — | — | — | — |
| Outcome | Probability | Year 4 Revenue | Year 5 Revenue | Year 6 Revenue | Year 7 Revenue |
| Huge Success | 25% | $12M | $15M | $18M | $21M |
| Moderate Success | 50% | $7M | $9M | $11M | $13M |
| Failure | 25% | -$3M | -$4M | -$5M | -$6M |
i) Construct a decision tree and list all the outcomes and cumulative probabilities (it may be easier to construct the tree in a different program and copy and paste into Excel)
ii) Assume all the values are present values. Should the company pursue this project based on the expected NPV?
**Grading Rubric**
**What:** An Excel (or similar) file with solutions to the five questions above posted in your Assignments Folder.
**291F6570-BE05-4BE3-A99D-0A33CF518918.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/291f6570-be05-4be3-a99d-0a33cf518918-jpg-10491205)
**B73AC6ED-902A-4C78-BA76-F148D0701464.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/b73ac6ed-902a-4c78-ba76-f148d0701464-jpg-10491199)
**F31F8685-7FA6-41F5-87E3-56D0CBDE1945.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/f31f8685-7fa6-41f5-87e3-56d0cbde1945-jpg)
**839ACC45-D6B6-4455-9F93-FBE6A6C793C8.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/839acc45-d6b6-4455-9f93-fbe6a6c793c8-jpg-10491203)
**A994665B-958D-40F2-9587-596A445D38F9.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/a994665b-958d-40f2-9587-596a445d38f9-jpg-10491215)
**4EC9B39E-4DA3-4474-A922-B4BD01F5BD72.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/4ec9b39e-4da3-4474-a922-b4bd01f5bd72-jpg-10491207)
**EFC33944-E593-40BC-A1C8-B2E74648889B.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/efc33944-e593-40bc-a1c8-b2e74648889b-jpg)
**097675B5-8C5E-4B91-B0BD-7E9AAFC4CBCB.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/097675b5-8c5e-4b91-b0bd-7e9aafc4cbcb-jpg)
**91E3E426-2570-4CD5-A351-827F216DE5F7.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/91e3e426-2570-4cd5-a351-827f216de5f7-jpg-10491213)
**D3734490-249B-45BA-9D51-646738C5D920.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/d3734490-249b-45ba-9d51-646738c5d920-jpg)
**## BTMN634Questions.docx**
**Questions**
1. An investment project provides cash inflows of $795 per year for eight years. a) What is the project payback period if the initial cost is $3,500? b) What if the initial cost is $5,000? c) What if it is $6,500?
2. Your firm wants to choose between two project options:
· Project A offers the following opportunity: $450,000 invested today will yield an expected income stream of $145,000 per year for five years, starting in Year 1.
· Project B requires an initial investment of $400,000, but its expected revenue stream is: Year 1 = 0, Year 2 = $50,000, Year 3 = $200,000, Year 4 = $300,000, and Year 5 = $200,000.
Assume that a required rate of return for your company is 12% and that inflation is expected to remain steady at 5% for the life of the project. Which is the better investment? Why?
3. Your vice president informs you that she has researched the possibility of automating your organization’s order-entry system. She has projected that the new system will reduce labor costs by $25,000 each year over the next five years. The purchase price (including installation and testing) of the new system is $100,000. The system is expected to have a useful life of five years, after which time it can be sold in the secondary computer systems market for $15,000.What is the net present value of this investment if the discount rate is 8.5% per year?
4. You are considering an investment in a startup that will cost $100,000 but you will receive a cash inflow of $25,000 every year for 5 years from the sale of products the startup will manufacture. The required return is 9%, and payback cutoff is 5 years. a) What is the payback period? b) What is the discounted payback period? (assume 5% discount rate) c) What is the NPV? d) What is the IRR? e) Should we accept the project?
5. Your company is planning to introduce a new online shopping service. To reduce risk, senior management propose developing the service in three stages:
a) A market test for one year with a few customers at a cost of $1 million. The likelihood of success for this test is estimated to be 75%.
b) A introductory period of one year, if the market test is successful. During this test the most widely ordered products will be available through the service to a wider audience. This phase of the project is estimated to cost $2.5 million with have a 50% chance of success.
c) Full roll-out of the service at the end of the second year if the introductory period is successful. This phase is estimated to cost $15 million and is expected to start generating revenue only by the end of the third year.
There are 3 possible outcomes from the full roll out:
| | | | | | |
| — | — | — | — | — | — |
| Outcome | Probability | Year 4 Revenue | Year 5 Revenue | Year 6 Revenue | Year 7 Revenue |
| Huge Success | 25% | $12M | $15M | $18M | $21M |
| Moderate Success | 50% | $7M | $9M | $11M | $13M |
| Failure | 25% | -$3M | -$4M | -$5M | -$6M |
i) Construct a decision tree and list all the outcomes and cumulative probabilities (it may be easier to construct the tree in a different program and copy and paste into Excel)
ii) Assume all the values are present values. Should the company pursue this project based on the expected NPV?
**Grading Rubric**
**What:** An Excel (or similar) file with solutions to the five questions above posted in your Assignments Folder.
**291F6570-BE05-4BE3-A99D-0A33CF518918.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/291f6570-be05-4be3-a99d-0a33cf518918-jpg-10491205)
**B73AC6ED-902A-4C78-BA76-F148D0701464.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/b73ac6ed-902a-4c78-ba76-f148d0701464-jpg-10491199)
**F31F8685-7FA6-41F5-87E3-56D0CBDE1945.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/f31f8685-7fa6-41f5-87e3-56d0cbde1945-jpg)
**839ACC45-D6B6-4455-9F93-FBE6A6C793C8.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/839acc45-d6b6-4455-9f93-fbe6a6c793c8-jpg-10491203)
**A994665B-958D-40F2-9587-596A445D38F9.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/a994665b-958d-40f2-9587-596a445d38f9-jpg-10491215)
**4EC9B39E-4DA3-4474-A922-B4BD01F5BD72.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/4ec9b39e-4da3-4474-a922-b4bd01f5bd72-jpg-10491207)
**EFC33944-E593-40BC-A1C8-B2E74648889B.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/efc33944-e593-40bc-a1c8-b2e74648889b-jpg)
**097675B5-8C5E-4B91-B0BD-7E9AAFC4CBCB.jpg**
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**91E3E426-2570-4CD5-A351-827F216DE5F7.jpg**
This file is too large to display. [View in new window](https://www.sweetstudy.com/files/91e3e426-2570-4cd5-a351-827f216de5f7-jpg-10491213)
**D3734490-249B-45BA-9D51-646738C5D920.jpg**
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