Tasman Ian De Ville Holdings Ltd. (TIDH) - Best Samples by Expert

Question: Mr. de Ville, the owner of Tasman Ian de Ville Holdings Ltd. (TIDH) has asked you to evaluate five investment projects. TIDH has a $10,000,000 investment budget, an investment hurdle rate of 11.0 %, and the owner has a requirement that all investments have a Payback Period (PBP) of under 3.5 years. Also, Project 2 brings the offices and warehouse up to the current fire code and the listed savings are the facilitation payments that will no longer need to be made to inspectors to avoid the office being shut-down. Year end Project 1 Project 2 Project 3 Project 4 Project 5 01 -$830,000 -$200,000 -$850,000 -$5,000,000 -$350,000 02 100,000 350,000 800,000 350,000 03 100,000 500,000 800,000 350,000 04 100,000 700,000 800,000 350,000 05 800,000 -2,650,000 06-30 1,000,000 800,000 350,000 Answer: Statement showing Net Present Value and Pay back period of each project: Year Pvf @ 11% Project 1 Project 2 Project 3 Project 4 Project 5 Cash Flow Cumulative Cash flow Present Value Cash Flow Cumulative Cash flow Present Value Cash Flow Cumulative Cash flow Present Value Cash Flow Cumulative Cash flow Present Value Cash Flow Cumulative Cash flow Present Value 01 0.900901 $ -830,000 $ -830,000 $ -747,748 $ -200,000 $ -200,000 $ -180,180 $ -850,000 $ -850,000 $ -765,766 $ -5,000,000 $ -5,000,000 $ -4,504,505 $ -350,000 $ -350,000 $ -315,315 02 0.811622 $ -830,000 $ - $ 100,000 $ -100,000 $ 81,162 $ 350,000 $ -500,000 $ 284,068 $ 800,000 $ -4,200,000 $ 649,298 $ 350,000 $ - $ 284,068 03 0.731191 $ -830,000 $ - $ 100,000 $ - $ 73,119 $ 500,000 $ - $ 365,596 $ 800,000 $ -3,400,000 $ 584,953 $ 350,000 $ 350,000 $ 255,917 04 0.658731 $ -830,000 $ - $ 100,000 $ 100,000 $ 65,873 $ 700,000 $ 700,000 $ 461,112 $ 800,000 $ -2,600,000 $ 526,985 $ 350,000 $ 700,000 $ 230,556 05 0.593451 $ -830,000 $ - $ 800,000 $ -1,800,000 $ 474,761 $ -2,650,000 $ -1,950,000 $ -1,572,646 06-30 4.997896 $ 1,000,000 $ 170,000 $ 4,997,896 $ 800,000 $ -1,000,000 $ 3,998,316 $ 350,000 $ -1,600,000 $ 1,749,263 Conclusion: The Net present value of each project is positive and hence, Mr. de Ville is recommended to make investment in each project. However, only Project 2 and 3 have a pay-back period of 3 Years and all others Project 1, 4 and 5 have payback period of more than 6 Years. Hence, the owner's requirement for pay-back period is not fulfilled as per the requirements of Mr. de Ville.