What are the time value of money calculations?

### 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.

### Unformatted Attachment Preview

Purchase answer to see full attachment

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

\$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

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

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

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

← hint
Solution

Question 2: What is the Required Rate of Return for Concordia?
Risk-free Rate
Market Risk
of Interest
(RF)
3.00%
4.00%

← 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

← 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
NPV
\$0
\$0

Project A

Project A
← Hint
\$0

\$0

Part 2a: Calculate the IRR for each project
Project A
Project A
IRR
0.0%
0.0%

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

← 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

← 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

← Hint

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

References:

Module 4_Assignment 2 Template
Question 1a: What is the annual cost, before any tax considerations o...

puritymaruga (7386)
Duke University
Review

Anonymous
Top quality work from this tutor! I’ll be back!

Anonymous
Heard about Studypool for a while and finally tried it. Glad I did caus this was really helpful.

Anonymous
Thank you! Reasonably priced given the quality

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors