Part 1
Assume that for a car manufacturer, Chrysler Ford. Your boss, the chief financial officer, has just handed you
the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s
ignition line; it would take some time to build up the market for this product, so the cash inflows would increase
over time. Project S involves an add-on to an existing line, and its cash flows would decrease over time. Both
projects have 3-year lives, because Chrysler is planning to introduce entirely new models after 3 years.
Here are the projects net cash flows (in thousands of dollars):
Expected after-tax
net cash flows (CFt) Project S
Year (t) Project S Project L 0 1 2 3
0 ($100) ($100) -100 70 50 20
1 70 10
2 50 60 Project L
3 20 80 0 1 2 3
-100 10 60 80
Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows.
The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk
characteristics which are similar to the firm’s average project. Chrysler’s weighted average cost of capital is 10%.
You must now determine whether one or both of the projects should be accepted.
Required
Evaluate the projects using the 5 key techniques:
(1) payback period,
(2) discounted payback period,
(3) net present value,
(4) internal rate of return, and
(5) modified internal rate of return.
Identify those projects that will lead to the maximization of the firm’s stock price.
Part 2
Critically appraise the appraisal techniques above. Discuss their limitations, the social and
ethical factors that should also be considered when making such decisions.
Our Advantages
Plagiarism Free Papers
All our papers are original and written from scratch. We will email you a plagiarism report alongside your completed paper once done.
Free Revisions
All papers are submitted ahead of time. We do this to allow you time to point out any area you would need revision on, and help you for free.
Free Title-page
A title page preceeds all your paper content. Here, you put all your personal information and this we give out for free.
Free Bibliography
Without a reference/bibliography page, any academic paper is incomplete and doesnt qualify for grading. We also offer this for free.
Originality & Security
At Homework Sharks, we take confidentiality seriously and all your personal information is stored safely and do not share it with third parties for any reasons whatsoever. Our work is original and we send plagiarism reports alongside every paper.
24/7 Customer Support
Our agents are online 24/7. Feel free to contact us through email or talk to our live agents.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Services
We work around the clock to see best customer experience.
Pricing
Our prces are pocket friendly and you can do partial payments. When that is not enough, we have a free enquiry service.
Communication
Admission help & Client-Writer Contact
When you need to elaborate something further to your writer, we provide that button.
Deadlines
Paper Submission
We take deadlines seriously and our papers are submitted ahead of time. We are happy to assist you in case of any adjustments needed.
Reviews
Customer Feedback
Your feedback, good or bad is of great concern to us and we take it very seriously. We are, therefore, constantly adjusting our policies to ensure best customer/writer experience.