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    FCM Exam 2017 Assignment

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    Bogdan Şipoş
    This document contains an exam assignment with two questions. For the first question, the internal rate of return is calculated to be 12% for the investment. A 10% discount rate would make the investment attractive with some room for cash flow changes. The second question asks if a 5% annual return requirement is met, which it is, and why companies set such requirements. However, this technique is not considered an important decision making one as it ignores the time value of money and cash flows.

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    FCM Exam 2017 Assignment

    Uploaded by

    Bogdan Şipoş
    64 views2 pages
    This document contains an exam assignment with two questions. For the first question, the internal rate of return is calculated to be 12% for the investment. A 10% discount rate would make the investment attractive with some room for cash flow changes. The second question asks if a 5% annual return requirement is met, which it is, and why companies set such requirements. However, this technique is not considered an important decision making one as it ignores the time value of money and cash flows.

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    This document contains an exam assignment with two questions. For the first question, the internal rate of return is calculated to be 12% for the investment. A 10% discount rate would make the investment attractive with some room for cash flow changes. The second question asks if a 5% annual return requirement is met, which it is, and why companies set such requirements. However, this technique is not considered an important decision making one as it ignores the time value of money and cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    64 views2 pages

    FCM Exam 2017 Assignment

    Uploaded by

    Bogdan Şipoş
    This document contains an exam assignment with two questions. For the first question, the internal rate of return is calculated to be 12% for the investment. A 10% discount rate would make the investment attractive with some room for cash flow changes. The second question asks if a 5% annual return requirement is met, which it is, and why companies set such requirements. However, this technique is not considered an important decision making one as it ignores the time value of money and cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Exam 2017 Assignment

    Group: Mads Aagaard, Bogdan Şipoş, Niels Sunddal Conradsen, Gabriela Lasauri

    A.1. What is the internal rate of return for this investment? Explain what information
    you can draw from analyzing this.

    The internal rate of return for this investment will be 12%. This means the discount rate for the
    investment can be up to 12%, in order for the resulting net present value to be at 0. However, in the case
    of the discount rate being at 12%, the project would be at a high risk, since there would be no room for
    the cash flow to be changed.
    For the investment to be considered attractive, the discount rate should be at around 10%, meaning that
    the discount rate can increase with approximately 16% so that the net present value is 0.

    A.2. Does the investment satisfy the company´s requirement of a return of 5% per year?
    Why will a company set up such a requirement? And would you consider this an
    important decision-making technique for the company? Why / why not?

    The accounting rate of return that the company requires is 5% per year, and the accounting rate of return
    from the investment is at 6%. Thus, the investment satisfies the company’s requirement.
    The company would set up such a requirement to asses the compensation for the level of risk, which is
    also called the hurdle rate.
    We would not consider this an important decision-making technique for the company, since this
    technique does not take the time value of money into account. Furthermore, this technique does not
    include the cash flow occurring during the investment period.
    Exam 2017 Assignment

    B.1. Would you recommend Trespa International to invest in the new electric forklift
    truck? Base your argumentation on both financial and non-financial data.

    We would not recommend Trespa International to invest in the new electric forklift truck, since the
    company would be loosing financial resources, due to the negative net present value, which is calculated
    to be at approximately -15000 €. Additionally, the low internal rate of return is not optimal, since it is at
    low level of 5%, as a result of the negative net present value. Negative net present value is also supported
    by the internal rate of return being less that the discount rate.
    However, this project would be well fitting with the values in Trespa’s License to Operate, such as
    “Sustainability and the preservation of the environment” and “Health and safety of its employees and the
    local community.”. Additionally, this would be a good investment in the Corporate Social Responsibility,
    which would increase the overall company’s value, and the company could be a potential first mover for
    going green and switching from diesel to electric forklifts.
    In conclusion, the financial deficit is too great even when non-financial factors are taken into account. If
    the net present value would have been at 0, the project could have been taken into consideration due to
    the non-financial benefits.

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