FNCE 623
1
Homework NPV, IRR and other project evaluation criteria.
Develop a proposal for the case if UCW wants to invest in a new Program. The project under
consideration costs $7,000,000, has a 5 (five) years life, and has no salvage value. Depreciation
is straight-line to zero. The required return is 17%. Sales are projected at 1,500 students/year.
Tuition Fees per student will be $5,500. Variable cost per student will be $2,500, and fixed costs
are $1,500,000 per year. Tax rate is 30%. Ignore CCA.
Your proposal should contemplate the following questions and problems:
Suppose you think that the number of students is accurate to within 15%. Calculate the
upper and lower bounds for these projections. (BEST-case and WORST-case scenarios).
1. Calculate the Base-case NPV and IRR (1,500 students/year).
Should UCW accept the project based on the base-case scenario?
2. Calculate the BEST-case NPV and the WORST-case NPV and IRR
If you look at best and worst-case scenarios, what else should be considered? Will you change
your recommendation and why?
3. Calculate other project evaluation criteria that you learned from the textbook and
lessons:
- Payback period
- discounted payback period
-
eakeven point
- profitability index,
- average accounting return
and explain what it means in terms of this project, how it will influence your
decision.
Maximum grade: 10% of the total. See the ru
ic below.
FNCE 623
2
Ru
ic:
0-40% 41-70%
71-90% 91-100%
Question 1
3 out
of 3
The answer is missing
or very
ief and/or
the concepts are only
minimally used,
and/or calculations
are inco
ect
The concepts are
used but there are
significant
gaps/e
ors in
calculations or in the
application of
concepts.
The concepts are
used but the
answer could have
more depth, minor
e
ors in
calculations
Co
ect
calculations and
analysis using the
concepts from
the topics
studied.
Question 2
3 out
of 3
The answer is missing
or very
ief and/or
the concepts are only
minimally used,
and/or calculations
are inco
ect
The concepts are
used but there are
significant
gaps/e
ors in
calculations or in the
application of
concepts.
The concepts are
used but the
answer could have
more depth, minor
e
ors in
calculations
Co
ect
calculations and
in-depth analysis
using the
concepts from
the topics
studied.
Question 3
4 out
of 4
The answer is missing
or very
ief and/or
the concepts are only
minimally used,
and/or calculations
are inco
ect
The concepts are
used but there are
significant
gaps/e
ors in
calculations or in the
application of
concepts.
The concepts are
used but the
answer could have
more depth, minor
e
ors in
calculations
Co
ect
calculations and
in-depth analysis
using the
concepts from
the topics
studied.