Fabiano Mountain Winery Company
1. Vernal's analysis is obviously some type of payback approach. Check to see if he is using it correctly by calculating the payback period (PB) for both designs. If Vernal has made a mistake, correct it.
2. Calculate both the NPV (at 12 %) and IRR for each design and then confirm the amounts provided by the accountant and the bookkeeper. (Hint: Both assumed that cost savings with the new designs are positive benefits). Also, calculate the payback, Profitability Index (PI = Present value/Cost) and the NPV/cost ratio.
3. Use your results to complete the following chart:
|
|
PB
|
NPV*
|
IRR
|
PI*
|
NPV/Cost
|
|
Design A:
|
_____
|
_____
|
31%
|
1.50
|
0.50
|
|
Design B:
|
_____
|
$33,254
|
_____
|
_____
|
_____
|
4. Shown below is Design B's NPV profile. On this same graph, plot Design A's NPV profile.
5. Do you agree with the bookkeeper that the NPV approach favors larger projects over smaller ones? In any event, which of the two designs should be accepted? Why?
Attachment:- Assignment Files.rar