Step One: Read the Case Study
Step Two: Make notes and proceed with calculations in Excel spreadsheet
(Calculate missed numbers, highlighted in yellow)
Step Three: Construct NPV profiles for projects
Step Four: Submit the file
N.B. Refer to NPV and IRR techniques.
Exhibit TN4 Hightrek Inc.
Alternative Investment: Facility Upgrade
Discount Rate
15%
Year 0
Year 1
Year 2
Year 3
Year 4
Upgrade Cash flows Sum of cash flows Net present value (NPV) Internal rate of return (IRR)
100,000 100,000 100,000 A
Hoophouse Cash flows Sum of cash flows Net present value (NPV) Internal rate of return (IRR)
(100,000) (92,060) (91,866) A
12,070
0
0
(4,130)
(91,000)
Hoophouse rather than upgrade Cash flows (hoophouse minus upgrade) Sum of cash flows Net present value (NPV) Internal rate of return (IRR)
(93,250)
0 12,070 0 7,940 8,134 4 [This is the break-even discount rate.]
0
4,130
Upgrade Hoophouse
(95,500)
NPV Profiles
Data Table 100,000 (91,866) 15% 100,000) (91,866) 19% 100,000 (91,917) 23% 100,000 (91,991) 27% 100,000 (92,084) 31% 100,000 (92,189) 35% 100,000 (92,303)
(97,750)
Data for Graph Cost of capital Upgrade Hoophouse 15% (100,000 (91,866) 19% (100,000 23% 100,000001 27% (100,000) 31% 100,000 35% 100,000 (92,303)
100,000)
15% 19% 23%
27%
31%
35%