Module 4 - SLP

Financing organizational technology

Investment is another area in which the math matters a great deal. Accordingly, the project for this module features some more calculations you're being asked to make, in order to demonstrate to us and to yourself that you understand where the numbers come from and where they are going. The kinds of calculations you're making here are the kinds of calculations that financial managers make all the time, and will wave in your face at the slightest provocation. Being able to speak the math back to them will come in handy on more than one occasion in your careers down the road.

Please perform the following kinds of calculations, and write a short report describing what you did, showing your figures, and the results that you obtained.

To do these calculations you will need to rely on your knowledge of net present value that you gained in Module 2. You will also need to study the internal rate of return and profitability index.

Note: You may use Excel spreadsheet in order to perform the necessary computations for this questions. The computation of the IRR is performed using the function: =IRR(range, guess) where range refers to the range where you have inserted the data on the spreadsheet and guess refers to an initial guess as to what might the IRR be [you may guess any number].

1. Consider a project with the following expected cash flows:

   Year	Cash flow
   0	- $549,000
   1	$91,000
   2	$182,000
   3	$374,000

   1. If the discount rate is 0%, what is the project's net present value?
   2. If the discount rate is 5%, what is the project's net present value?
   3. What is this project's internal rate of return?
2. Consider a project with the expected cash flows:
   1. What is this project's internal rate of return (IRR)?
   2. If the discount rate is 4%, what is this project's net present value?

Year	Cash flow
0	- $51,000
1	$51,000
2	$87,000
3	- $87,000

3. A project requiring a $1.26 million investment has a profitability index of 0.96. What is its net present value?
4. Suppose that I am trying to borrow money from you to finance my business. And suppose that I promise to repay you in two installments, one payment in two years of $15,000 and one payment in four years for $10,000. If your opportunity cost of funds is 10%, how much are you willing to lend me?
5. What is the effective annual rate of interest for a loan that has an 15% annual percentage rate, compounded monthly?

SLP Assignment Expectations

Use information from the modular background readings as well as any good quality resource you can find. Please cite all sources and provide a reference list at the end of your paper.

LENGTH: 1-2 pages typed and double-spaced.

The following items will be assessed in particular:

1. Your ability to perform each of the calculations correctly.