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Explain feasibility analysis. What is the NPV? . . . the B/C? . . . the IRR? What is the criterion for project acceptability for the NPV? . . . for the B/C? . . . for the IRR? How is the IRR of a proj
Explain feasibility analysis.
What is the NPV? . . . the B/C? . . . the IRR?
What is the criterion for project acceptability for the NPV? . . . for the B/C? . . . for the IRR?
How is the IRR of a project generally calculated?
Why is the IRR generally not a good way to evaluate investment alternatives?
Consider the following investment. You invest $500 per acre to establish a stand of trees. At the end of each year for 30 years, you incur an annual management expense of $10. At the end of 30 years, you receive $5,000 per acre in stumpage fees.
Calculate the NPV and B/C ratio for this investment.
Calculate the internal rate of return on this investment to the nearest tenth of a percent.
Given below are the after-tax incremental cash flows for Projects A and B. Note the similarity between the two projects.
End of Year
Projects
0
1
2
3
4
5
Project A
-10,000
-50000
60,000
20,000
30,000
15,000
Project B
-10,000
50,000
-60,000
40,000
30,000
20,000
Calculate the NPV at 20% for each project.
Calculate the IRR(s) for the two projects.
If you had to invest in one of the projects, which project would you prefer and why?
The Rover 6 is a new custom-designed sports car. An analysis of the task of building the Rover 6 reveals the following list of relevant activities, their immediate predecessors, and their duration.
Letter
Normal
Description
Immediate
Predecessor(S)
Time (Days)
B
Design
A
8
C
Order special accessories
B
1
D
Build frame
B
1
E
Build doors
B
1
F
Attach axles, wheels, gas tank
D
1
G
Build body shell
B
2
H
Build transmission & drivetrain
B
3
I
Fit doors to bodyshell
G, E
1
J
Build engine
B
4
K
Bench-test engine
J
2
L
Assemble chassis
L
1
N
Paint body
I
2
O
Install wiring
N
1
P
Install interior
N
2
Q
Accept delivery of special accessories
C
5
R
Mount body and accessories on the chassis
M, O, N, Q
1
S
Road test
R
1
T
Attach exterior trim
S
1
