PT. ABC is one of the most prestigious companies providing holiday travel packages to tourism destinations in Indonesia.
Posted: Sun May 29, 2022 6:37 pm
PT. ABC is one of the most prestigious companies providing
holiday travel packages to tourism destinations in Indonesia. The
company's management is undergoing expansion strategy to cater
higher demand in 2023 onward. As part of the strategy, the company
is evaluating two independent projects that should be started in
mid-2022 in order to be completed in the end of December 2027. In
2022, PT. ABC received new capital injection from strategic
investor in California, US. Next week, the financial manager of PT.
ABC will bring the two project’s proposals to the board of
directors for their approval. The manager prepares the cost and
expected cash flows generating from the project as shown in Table
1
Based on financial manager’s calculation, the cost of capital is
capped at 10.5%. You are asked to help the manager to evaluate the
available projects and make the most appropriate decision that
would bring optimal values to the firm. Instruction:
A. Calculate the project’s NPV.
B. Calculate the project’s IRR.
C. What is the decision based on NPV? What is the decision based
on IRR? Is there any conflict concerning the decision?
D. As you are asked to help the financial manager, which project
or projects will be accepted based on the calculation? Explain your
reasoning.
Year Project Cenderawasih A 0 1 2 3 4 5 Initial investment of USD500,000 Cash flow year 1 = USD150,000 Cash flow year 2 = USD150,000 Cash flow increased by 10% from the previous year. Cash flow increased by 10% from the previous year. Cash flow increased by 10% from the previous year. Project Cenderawasih B Initial investment of USD650,000 Cash flow year 1 of USD170,000 Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year.
holiday travel packages to tourism destinations in Indonesia. The
company's management is undergoing expansion strategy to cater
higher demand in 2023 onward. As part of the strategy, the company
is evaluating two independent projects that should be started in
mid-2022 in order to be completed in the end of December 2027. In
2022, PT. ABC received new capital injection from strategic
investor in California, US. Next week, the financial manager of PT.
ABC will bring the two project’s proposals to the board of
directors for their approval. The manager prepares the cost and
expected cash flows generating from the project as shown in Table
1
- Pt Abc Is One Of The Most Prestigious Companies Providing Holiday Travel Packages To Tourism Destinations In Indonesia 1 (66.35 KiB) Viewed 14 times
capped at 10.5%. You are asked to help the manager to evaluate the
available projects and make the most appropriate decision that
would bring optimal values to the firm. Instruction:
A. Calculate the project’s NPV.
B. Calculate the project’s IRR.
C. What is the decision based on NPV? What is the decision based
on IRR? Is there any conflict concerning the decision?
D. As you are asked to help the financial manager, which project
or projects will be accepted based on the calculation? Explain your
reasoning.
Year Project Cenderawasih A 0 1 2 3 4 5 Initial investment of USD500,000 Cash flow year 1 = USD150,000 Cash flow year 2 = USD150,000 Cash flow increased by 10% from the previous year. Cash flow increased by 10% from the previous year. Cash flow increased by 10% from the previous year. Project Cenderawasih B Initial investment of USD650,000 Cash flow year 1 of USD170,000 Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year. Cash flow increased by 11% from the previous year.