Your group is working as the Finance Team of New Age Toys Ltd. Your Team was required by the company’s management to pre
Posted: Sun May 29, 2022 8:31 pm
Your group is working as the Finance Team of New Age Toys Ltd.
Your Team was required by the company’s management to prepare and
evaluation on a new investment that aims to boost revenue by at
least 15%. New Age Ltd.’s Management Board would like to convince
the oncoming shareholders meeting on the outcome of this project.
The board required your team to choose a method of capital
budgeting that enables the board to tell shareholders about the
potential share value increase generated by the new project. The
table below shows the estimated data available of two alternative
options for your company’s choice of capital budgeting. Option 1
Option 2 Initial Investment $500,000 Initial Investment 655,000
Cash Flow in Cash flow in Year 1 200,000 Year 1 250,000 Year 2
200,000 Year 2 250,000 Year 3 200,000 Year 3 250,000 Year 4 200,000
Year 4 250,000 Your team is required to write a short report to the
company’s Management:
1) To select a relevant method of project evaluation among five
investment criteria of Net Present Value (NPV), Average Accounting
Return (AAR), profitability Index (PI), Internal Rate of Return
(IRR), Simple Payback Period, and Discounted Payback Period for
each alternative option, given the market required rate of return
for all projects of this type is xxx% and the company’s benchmark
of payback is maximum 3 years. Your recommendation must include
your justification on why you choose the specific method based on
its pros and cons compared to other methods and the financial
condition of the company. (4 marks)
2) To perform the selected method and present the outcome of
your project evaluation and recommend the option 1 or option 2
should the company choose for the project. Your justification must
include calculation steps and numerical outcomes. (6 marks)
Your Team was required by the company’s management to prepare and
evaluation on a new investment that aims to boost revenue by at
least 15%. New Age Ltd.’s Management Board would like to convince
the oncoming shareholders meeting on the outcome of this project.
The board required your team to choose a method of capital
budgeting that enables the board to tell shareholders about the
potential share value increase generated by the new project. The
table below shows the estimated data available of two alternative
options for your company’s choice of capital budgeting. Option 1
Option 2 Initial Investment $500,000 Initial Investment 655,000
Cash Flow in Cash flow in Year 1 200,000 Year 1 250,000 Year 2
200,000 Year 2 250,000 Year 3 200,000 Year 3 250,000 Year 4 200,000
Year 4 250,000 Your team is required to write a short report to the
company’s Management:
1) To select a relevant method of project evaluation among five
investment criteria of Net Present Value (NPV), Average Accounting
Return (AAR), profitability Index (PI), Internal Rate of Return
(IRR), Simple Payback Period, and Discounted Payback Period for
each alternative option, given the market required rate of return
for all projects of this type is xxx% and the company’s benchmark
of payback is maximum 3 years. Your recommendation must include
your justification on why you choose the specific method based on
its pros and cons compared to other methods and the financial
condition of the company. (4 marks)
2) To perform the selected method and present the outcome of
your project evaluation and recommend the option 1 or option 2
should the company choose for the project. Your justification must
include calculation steps and numerical outcomes. (6 marks)