Calculate PBP (Payback period), IRR (Internal rate of return) and NPV (Net Present Value) of the project. State, giving reason(s), whether the project should be accepted..
Finally, the company adopts the straight-line method for depreciation and has a cost of capital (WACC) of 10%.
Ignoring inflation and taxation, you are required to address the following:
(a)
Explain the concept of ‘relevant cash flows’ for investment decisions and apply the criteria to the case of Huawii Co – you need to prepare a table of relevant cash flows for this project.
(20 marks)
(b)
Calculate PBP (Payback period), IRR (Internal rate of return) and NPV (Net Present Value) of the project. State, giving reason(s), whether the project should be accepted.
(30 marks)
(c)
Cash flows have been applied to assess the investment project so far. Explain why accounting profits may not be the best measure of a company’s achievements.
(20 marks)
(d)
Discuss the effect of a substantial rise in interest rates on the investment decision-making process for businesses.
(30 marks)
(TOTAL: 100 marks)
Note
·
Word limit is 3,000 words.
·
One electronic copy to be sent to Turnitin by 18th Jan 2019 3pm.
Assessment Criteria
Standard assessment regulations apply. You must reference your work as required by Cardiff Metropolitan University regulations.
This is assessment One and contributes 50% of the overall module assessment.
Learning Outcomes. On successful completion of this assessment, the student will:
·
Demonstrate an awareness of the financial context in which business operate.
·
Understand and explain key concepts and models, in this case accounting flows vs. relevant cash flows.
·
Evaluate capital projects/investments using a range of recognized techniques, including IRR, PBP and NPV.
·
Justify the impact of economic parameters, such as interest rate, on business.