### Question Description

Time Value of Money Calculations

The IT department has requested an update in its server population. This upgrade is required to maintain a competitive position. The CEO has asked that you evaluate the project and submit a recommendation to her, in terms of whether the company should move forward with this request. The calculated value of the project is a reduction of expenses, including power and replacement costs, as shown in Table-1:

Year | Decrease in Expenses |

1 | $30,000.00 |

2 | $100,000.00 |

3 | $120,000.00 |

4 | $100,000.00 |

5 | $30,000.00 |

Assume the impact after five years to be immeasurable. The cost of capital to the firm is currently 8% and the cost of the project today is $286,000.

Required:

- Calculate the net present value of the project
- Calculate the internal rate of return
- Calculate the payback period
- Calculate the discounted payback period

Submit an Excel file with your calculations, and a 2-to-5-page paper that explains the calculations and provides your final assessment and decision. Justify your recommendations. The paper must be submitted as a Word document and it must follow APA style guidelines.

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## Final Answer

Attached.

Template for the Module 1_Assignment 3

Firm's Cost of Capital

Year

0.08

Annual Cash Flows

0

1

2

3

4

5

(286,000.00)

30,000.00

100,000.00

120,000.00

100,000.00

30,000.00

Total 5 year savings

380,000.00

Part 1: Calculate the Net Present Value and Explain Results

YouTube Link on How to do NPV Calculations in Excel below. Copy and paste into your browser

PV of Savings

Initial Investment

Net Present Value

https://www.youtube.com/watch?v=YdCkyNMFbOo

$588,692.01 hover over cell to see comments

(286,000.00)

hint:

$302,692.01

(NPV)

Explain results below

Part 2: Calculate the Internal Rate of Return and Explain Results

YouTube Link on How to do IRR Calculations in Excel below. Copy and paste into your browser

https://www.youtube.com/watch?v=xzqpfpq6vSk

Internal Rate of Return

Explain results below

(IRR)

hint:

Part 3: Calculate the Payback Period and Explain Results

YouTube Link on How to do Payback Calculations in Excel below. Copy and paste into your browser

https://www.youtube.com/watch?v=NwSmUDvWTPA

Annual Cash Flows

Payback Period

hint:

(286,000.00)

(286,000.00)

30,000.00

(256,000.00) Balance Forward

100,000.00

120,000.00

100,000.00

30,000.00

Explain results below

hint:

Part 4: Calculate the Discounted Payback Period and Explain Results

YouTube Link on How to do Discount Payback Calculations in Excel below. Copy and paste into your browser

https://www.youtube.com/watch?v=XwwLC7ood2U

Annual Cash Flows

Firm's Cost of Capital

8%

(286,000.00)

30,000.00

(286,000.00)

27,777.78

(286,000.00)

(258,222.22)

100,000.00

120,000.00

100,000.00

30,000.00

Explain results below

hint:

Part 5: Analyze Results and Make Recommendations

References:

30000

100000

120000

100000

30000

380000

Module 2_Assignment 2 (Template)

Question 1: What is the Beta Coefficient for Concordia?

Table-1:

Plant

Beta Coefficient

% of Concordia's Income

South Town

0.85

55%

North Town

0.90

20%

East Town

1.25

15%

West Town

1.60

10%

Question 1: Beta Coefficient for Concordia

Explain your answer:

← hint

Solution

Question 2: What is the Required Rate of Return for Concordia?

Risk-free Rate

Market Risk

of Interest

Premium (RP)

(RF)

3.00%

4.00%

Explain your answer:

← hint

← hint

← hint

Concordia's

Concordia Composit Beta (B) Required Rate of

Return (kreq)

← hint

Question 3a: What is the equation for the Security Market Line (SML)?

← hint

3b: Graph the equation

3c: Explain what the SML is telling you and the implications for the firm

← hint

Question 4: Based on the information provided in the case, if the new plant is

expected to return 12%, should Concordia make the investment? Explain your

answer and justify your calculations.

← hint

References:

Module 3_Assignment 2 Template

Cost of Capital

Year

0

1

2

3

4

5

PV of CF's

NPV

IRR

$

$

$

$

$

$

8.0%

Project A

(8,000.00)

2,300.00

2,300.00

2,300.00

2,300.00

2,300.00

$

$

$

$

$

$

8.0%

Project A

(10,000.00)

3,000.00

3,000.00

3,000.00

3,000.00

3,000.00

$

$

$

$

$

$

8.0%

Project A

(9,000.00)

2,800.00

2,800.00

2,800.00

2,800.00

2,800.00

$

$

$

$

$

$

8.0%

Project A

(8,500.00) Initial Cost

2,100.00

2,100.00

Positive

2,100.00

Cash Flows

2,100.00

2,100.00

← Hint

Part 1a: Find NPV for each project

Project A

Project A

https://www.youtube.com/watch?v=s2ZZFjC2UBU

NPV

$0

$0

Project A

Project A

← Hint

$0

$0

Part 1b: Explain your findings

Part 2a: Calculate the IRR for each project

https://www.youtube.com/watch?v=z_EXlBMpzeQ

Project A

Project A

IRR

0.0%

0.0%

Part 2b: Explain your findings

Part 3: Which projects should be selcect and why?

← Hint

Project A

0.0%

Project A

0.0%

Assume for Parts 4 , 5 and 6 that if the projects meet the NPV and IRR test, Project A will be

implimented in Year 1, Project B will be implement in Year 2, Project C will be implemented in Year 3

and Project D will be implemented in Year 4.

Part 4: What will the total dividends and the external financing be if the current dividend per share

is maintained?

Year

After Tax Income

1

2

3

4

$

$

$

$

Dividend

Capital

Expenditure

External Funding

Required

6,000.00

8,000.00

5,000.00

7,000.00

Additional Funding Required

← Hints

← Hint

Part 5: What will the total dividends and the external financing be if the dividend payout ratio is

50% of After-Tax Income?

Year

After Tax Income

1

2

3

4

$

$

$

$

Dividend

Capital

Expenditure

External Funding

Required

6,000.00

8,000.00

5,000.00

7,000.00

Additional Funding Required

← Hints

← Hint

Part 6: What will the total dividends and the external financing be if the company uses a residual

dividend payout policy?

Year

After Tax Income

1

2

3

4

$

$

$

$

6,000.00

8,000.00

5,000.00

7,000.00

Dividend

Capital

Expenditure

External Funding

Required

← Hints

Additional Funding Required

← Hint

Part 7: Under which dividend policy would the external funding requirement be minimized? Be

sure to justify your answer.

References:

Module 4_Assignment 2 Template

Question 1a: What is the annual cost, before any tax considerations o...

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