Management homework help.
Overview
A company’s growth and development, and indeed its ability to remain competitive and survive, depends upon a constant flow of new investment ideas. The most common and effective method used to evaluate investments in longterm projects is to determine each project’s net present value (NPV). The process of determining whether the future cash flow benefits arising from a longterm project are sufficient to justify the required upfront cash investment is also called capital budgeting. The net present value method uses a discount rate (interest rate) to restate all cash flows in terms of present values, and then makes comparisons on which project has the highest net present value.
In this project you are provided expected cash flows over the course of five years for two alternative longterm projects that XYZ Entertainment Company is considering investing in. XYZ will only invest in one of the projects. XYZ uses a discount rate (interest rate) of 18% to calculate the present value of future cash flows.
What You’ll Need
 Your MacBook Pro laptop
 Internet access
 MS Word software
Prepare
 Complete the Week 3 Read & View assignment.
 Download the Project 3 Answer Sheet.
 EBS160_Project3AnswerSheetRM_MW1.docx23 KB
 Use the XYZ cash flow projections below to complete your calculations for this project.
 XYZ LongTerm Cash Flow Projection for Project A
Cash Investment at start of project (initial cash outflow) = ($1,000,000)
Year 1: Cash inflow = $350,000
Year 2: Cash inflow = $350,000
Year 3: Cash inflow = $350,000
Year 4: Cash inflow = $350,000
Year 5: Cash inflow = $350,000
 XYZ LongTerm Cash Flow Projection for Project B
Cash Investment at start of project (initial cash outflow) = ($1,000,000)
Year 1: Cash inflow = $450,000
Year 2: Cash inflow = $500,000
Year 3: Cash inflow = $500,000
Year 4: Cash inflow = $150,000
Year 5: Cash inflow = $150,000
The formula to calculate the present value of each year’s future cash inflow is:
Present Value = Future Value / (1 + interest rate)Number of Years
Follow these steps to determine each project’s net present value (NPV):
1. Calculate the present value of the cash inflows for each of the 5 years.
2. Sum all 5 years of calculated present values.
3. Subtract the cash investment at the start of the project (initial cash outflow).
4. The result will be the projects’s net present value.
Create
Use XYZ Entertainment Company’s 5year Cash Flow projections for Project A and Project B to complete the Project 3 Answer Sheet. Include the following information:
1. The net present value (NPV) of Project A
 The present value of cash inflow for year 1
 The present value of cash inflow for year 2
 The present value of cash inflow for year 3
 The present value of cash inflow for year 4
 The present value of cash inflow for year 5
2. The net present value (NPV) of Project B
 The present value of cash inflow for year 1
 The present value of cash inflow for year 2
 The present value of cash inflow for year 3
 The present value of cash inflow for year 4
 The present value of cash inflow for year 5
3. Which project has the highest net present value (Project A or Project B)?
Submit
 Save your completed Project 3 Answer Sheet as a PDF document.
 Name your Project 3 Answer Sheet document as follows: LASTNAME_FIRSTNAME_Project3
 Upload your file to LAO and Submit.

EBS160_Project3AnswerSheetRM_MW1.docx