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代写加拿大assignment（Financial

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Executive Report for Peaches plc. -about Strategic Option Choosing 1.3 Net Present Value The third investment appraisal method is NPV which reduces the value of a project’s future cash flows by multiplying by the appropriate yearly factors at the required rate of return (Levy and Sarnat, 1986). Since the discount rate is 12.5% which is so uncommon, therefore, I decided to calculate the discount rate through formula (see appendix 1). Here is a table indicates three option’s NPV. Table 10: Calculation of NPV for Three Options

	Strategic Option 1A		Strategic Option 1B		Strategic Option 1C
Year	Discount rate (12.5%)	Cash flow £m	Present value £m	Cash flow £m	Present value £m	Cash flow £m	Present value £m
1	0.889	(0.7)	(0.622)	(1.5)	(1.334)	2.5	2.223
2	0.790	3.1	2.449	2.3	1.817	4	3.160
3	0.702	7.6	5.335	6.8	4.774	4	2.808
4	0.624	9.6	5.990	8.8	5.491	4	2.496
5	0.555	11.6	6.438	10.8	5.994	3	1.665
6	0.493	11.6	5.719	10.8	5.324	3	1.479
7	0.438	9.6	4.205	8.8	3.854	3	1.314
8	0.390	7.6	2.960	6.8	2.652	2	0.780
9	0.346	5.6	1.938	4.8	1.661	2	0.692
10	0.308	7.8	2.402	4	1.232	2.2	0.678
Total			36.814		31.465		17.295
Less initial outlays			(17.2)		(13.6)		(5.2)
Net present value			19.614		17.865		12.095

1.4 Internal Rate of Return The last investment appraisal method, which is closely related to the NVP method, called internal rate of return (IRR) is calculate the discount rate that applied to its future cash flows to produce and NPV of precisely zero (Mclaney and Atrill, 2012). Here are three tables which present the IRR for three strategic options separately. The IRR equal to: Lower rate + () Table 11: Calculation of IRR for Strategic Option 1A

Strategic Option 1A
		Discount rate 12.5%		Discount rate 35%
Year	Cash flow £m	Discount rate (12.5%)	Present value £m	Discount rate (30%)	Present value £m
1	(0.7)	0.889	(0.622)	0.7407	(0.518)
2	3.1	0.790	2.449	0.5487	1.701
3	7.6	0.702	5.335	0.4064	3.088
4	9.6	0.624	5.990	0.3011	2.891
5	11.6	0.555	6.438	0.2230	2.587
6	11.6	0.493	5.719	0.1652	1.916
7	9.6	0.438	4.205	0.1224	1.175
8	7.6	0.390	2.96	0.0906	0.689
9	5.6	0.346	1.938	0.0671	0.376
10	7.8	0.308	2.402	0.0497	0.388
Total			36.814		14.293
Less initial outlays			(17.2)		(17.2)
Net present value			19.614		(2.907)

The difference between the two net present values is £19.614-(-2.907) = £22.521 while the difference between the two discount rates is 22.5%. It can get the equation of IRR in strategic option 1A: 12.5% + (35%-12.5%) =12.5%+19.6%=32.1% Table 12: Calculation of IRR for Strategic Option 1B

Strategic Option 1B
		Discount rate 12.5%		Discount rate 35%
Year	Cash flow £m	Discount rate (12.5%)	Present value £m	Discount rate (35)	Present value £m
1	(1.5)	0.889	(1.334)	0.7407	(1.111)
2	2.3	0.790	1.817	0.5487	1.262
3	6.8	0.702	4.774	0.4064	2.764
4	8.8	0.624	5.491	0.3011	2.650
5	10.8	0.555	5.994	0.2230	2.408
6	10.8	0.493	5.324	0.1652	1.784
7	8.8	0.438	3.854	0.1224	1.077
8	6.8	0.390	2.652	0.0906	0.616
9	4.8	0.346	1.661	0.0671	0.322
10	4	0.308	1.232	0.0497	0.199
Total			31.465		11.971
Less initial outlays			(13.6)		(13.6)
Net present value			17.865		(1.629)

The difference between the two net present values is £17.865-(-£1.629) = £19.494 while the difference between the two discount rates is 22.5%. It can get the equation of IRR in strategic option 1B: 12.5% + (35%-12.5%) = 12.5% + 20.6% = 33.1% Table 13: Calculation of IRR for Strategic Option 1C

Strategic Option 1C
		Discount rate 12.5%		Discount rate 70%
Year	Cash flow £m	Discount rate (12.5%)	Present value £m	Discount rate (70%)	Present value £m
1	2.5	0.889	2.223	0.5882	1.471
2	4	0.790	3.160	0.3460	1.384
3	4	0.702	2.808	0.2035	0.814
4	4	0.624	2.496	0.1197	0.479
5	3	0.555	1.665	0.0704	0.211
6	3	0.493	1.479	0.0414	0.124
7	3	0.438	1.314	0.0244	0.073
8	2	0.390	0.780	0.0143	0.029
9	2	0.346	0.692	0.0084	0.017
10	2.2	0.308	0.678	0.0050	0.011
Total			17.295		4.613
Less initial outlays			(5.2)		(5.2)
Net present value			12.095		(0.587)

The difference between the two net present values is £12.095-(-£0.587) = £12.682 while the difference between the two discount rates is 57.5%. It can get the equation of IRR in strategic option 1C: 12.5% + (70% - 12.5%) =12.5% + 54.8% = 67.3%

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