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# Lincolm Electric Company Essay

298 words - 2 pages

Quiz
01.

Question:
If the cost of capital were 8% pa, briefly explain which project were more favorable
under NPV and IRR analysis!
Project A

02.
Annual revenues
Annual operating costs
System investment
Project life

\$240,000
120,000
360,000
5 years

Project B
\$300,000
160,000
420,000
5 years

Question:
If the cost of capital were 12% pa, which project will you recommend?
Briefly explain your supporting ...view middle of the document...

Project A
NPV
= ((PVIF, 8%, 2 years) x \$ 1,440,000) - \$ 1,000,000
IRR
= ((PVIF, ??%, 2 years) x \$ 1,440,000) - \$ 1,000,000 = 0
Project B
NPV
= ((PVIFA, 8%, 2 years) x \$ 686,342) - \$ 1,000,000
IRR
= ((PVIFA, ??%, 2 years) x \$ 686,342) - \$ 1,000,000 = 0

Management Control System - TA Genap 1516

By: Natalis Christian, SE., MM.

2

01.

Modified Comparison of Projects A and B

*1.08(\$686,342) + \$686,342.
Modified Cash Flows with Additional Opportunity

a\$1,440,000

+ [(1.20 x \$686,342) - (1.08 x \$686,342)]. This last term is what is
needed to repay the capital and its cost at the end of Year 2.
b\$686,342 + (1.20 x \$686,342).

Since Project A gives more cash inflow than Project B,
then the more favorable project should be Project A
Management Control System - TA Genap 1516

By: Natalis Christian, SE., MM.

3

02.

Cash Flow Pattern, NPV and IRR Analysis:
Standard T2 versus Custom Travel

Management Control System - TA Genap 1516

By: Natalis Christian, SE., MM.

4

02.

aFrom

Exhibit 20B-2.

bFrom

Exhibit 20B-2, df = 3.0 implies that IRR =20%.

Management Control System - TA Genap 1516

By: Natalis Christian, SE., MM.

5

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