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##### Project A B Initial Investment ($11,000) ($...

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Project A B Initial Investment ($11,000) ($17,000) Duration of Project 6 years 6 years Cash flow per year $4,000 $6,000 Required Rate of Return 15% 15% NPV $4,138 $5,707 IRR 28.16% 26.80% Terminal value $35,014.95 $39,391.82 MIRR 17.77% 17.18% Discounted Payback 3.82 3.96 a) If these projects are mutually exclusive, explain which one would you pick. First must explain the method you would use. b) Discuss the relative Advantages and disadvantages of all the methods. c) What can you deduce about the reinvestment rate vs. the finance rate from the MIRR? Is the reinvest rate higher or lower than the finance rate? Explain. d) If these projects are independent, explain which one(s) would you pick (you could pick both). 2) a) It is stated that the value of any asset is simply the present value of future cash flows. Explain this more fully, citing the chapters and specific instances where this concept is applied. b) What factors impact the value of the business? c) What are the sources of value for a business?,where do I start?,The Discounted Free Cash Flow Model for Total Equity Barking Dog Corporation Years Ending December 31 Actual |------------------------------------Forecast ---------------------------------------| 2010 2011 2012 2013 2014 Total revenue $14,500,000 Cost of Goods Sold 7,250,000 Gross profit Selling, general and administrative expenses 2,900,000 Earnings before interest, taxes, depr. & amort. (EBITDA) Depreciation and amortization Earnings before Interest and taxes (EBIT) Federal and State Income Taxes 0 Net Operating Profit After-Tax (NOPAT) 0 Terminal value of Fixed Asset, 2014 2,000,000 Present Value of Free Cash Flows @ WACC Net Discounted Cash flow Add back depreciation and amortization 0 Subtract Capital Expenditures 2,000,000 Subtract New Net Working Capital 1,450,000 Free Cash Flow ($3,450,000) Total Present Value of Company Operations Plus Current Assets 1,000,000 Less Current Liabilities -800,000 Less Long-Term Debt -5,000,000 Less Preferred Stock Outstanding -300000 Net Market Value of Common Equity NPV IRR MIRR At Reinvestment Rate of 10% Discounted Payback

Paper#8670 | Written in 18-Jul-2015

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