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Assignment 1: Prepare the cash flow calculation for the two projects and calculate
Net Present Value and Internal Rate of Return. Pay attention to following items:
NPV and IRR formulae in Excel are slightly different, you can check the result by
keeping in mind that IRR is equal to the discount rate which gives NPV=0.
Thus, you can also calculate IRR by using the Goal Seek function in Excel and
applying it to the NPV formula.
How to deal with depreciations (why are they added back to EBIT (1-t))
What is working capital here, and how much does it influence the end result?
The firm uses a rather peculiar method that calculates the value of successful
projects Projects that created value indefinitely, given continuing investment,
were treated as going concerns with a perpetual life. That is, NPV calculations
included a terminal value computed as the value of a perpetuity growing at a
constant rate. Use Gordon growth model T0 = FCFN+1/(k g) in computing the
terminal value, which means that the free cash flow is divided by (discount rate
k growth g). How does this affect the calculations? What if this kind of value
was not used how much would it alter the results?
Deadline is February 13th, 2015