Question

Make excel file possible to open and edit.

Scenario for Homework #1 • Let's say that a company has purchased a plot of land (approximately 15 acres) in an affluent suburb. They must now decide what to build on that land. The three options they are considering are listed in the table below along with the forecasted cash flows for each option. Complete the decision matrix on the next slide to determine which would be the best option (choose only one). Write a sentence or two explaining your answer and why you selected that project. • Hint: Use Excel to do your calculations of NPV and PP. Turn in your Excel file with explanation to the drop-box for HW #1. (20 points) Office Park (40 8-room offices) -$360 Shopping Center Apartment Building (100 units) -$750 Cash Flows ($000) Initial Outlay Net Inflows per year (8 stores) -$500 +$100 +$60 +$125 Number of Years of inflows 20 20 20

Answer 1

ipboard 6 Font Alignment Number Sivic Cells Editing Editing Ideas I M N X O P PP Formula: IBCL E F G H Calculating Net Present Value NPV Formula: Apartment Building Discount Rate: Office Building Shopping Center Apartment Building Year 0 1 2 3 Cash Flows (in $ 0001 -750 100 100 100 100 100 J K L = NPV(B2/12,C6:V6)+B6 = NPV(B2/12,011:111)+811 = NPV(B2/12,016:V16)+316 Q R S Apartment Building Office Building Shopping Center T U V W = (-B6/C6) = (-811/11) = (-B16/016) NPV 18 19 20 100 100 100 $1,148.74 PP 11 100 12 100 13 100 14 100 15 100 16 100 17 100 100 100 100 100 100 Office Building Year Cash Flows (in $ 000] 4 5 50 6 60 7 60 8 60 9 60 10 60 11 60 12 60 13 60 14 60 15 60 16 60 17 60 18 60 19 60 20 60 -360 60 60 60 $779.25 Shopping Center Year Cash Flows (in $ 000 -500 120 120 120 120 120 120 120 120 120 120 120 120 12A, 120 120 120 120 120 120 120 $1,778.49 4.166667 Shopping Center 10 10 Office Park 10 7 0.11 20 Answer 160.02 29.15 Shopping center will be the best option because it has the highest rating. it has moderate cash outflows with the high cash inflows. Project Weight Apartment Building Alignment with strategic goal 10 NPY 9 103. 41 Payback period 5 12.5 LD Low Risk TOTAL 133.91 2 NPV Rating $11.49 13 PP Rating $2.50 Sheet1 108.11 $7.79 $4.00 207.17 $17.78 $5.83 Ready Twe ENG 00:24