Memo
To: CFO Superior Living
Cc:
From: Group Project
Date:
Re: Analyzing Project
Message: Excel spreadsheet hurdle rate scenarios
Enclosed are my findings for the new project for Superior Living. I have analyzed the project and have come up with these finding in regards to the new project as well I have looked into how the project will fair if used hurdle rate scenarios of 10%, 15%, and 20% based on MIRR.
When we look at the MIRR for this project we can see that the percentage rate is 18%, in many cases when figuring out the MIRR we would like to see it higher than the Hurdle Rate, after applying these figures into a spreadsheet I would recommend the following:
o The Hurdle Rate of -10%- Accept Project o The Hurdle Rate of – 15%- Accept Project o The Hurdle Rate of – 20% – Reject Project
Conclusion
Depending on the Hurdle Rates this could make the difference if investor would invest in this project. The Hurdle rate is the rate of return of our project, based on the cost of capital that Superior has. And any risk that is associated with the project will determine if the project is a good investment. When we measure the MIRR and it doesn’t exceed the hurdle rate then this would be a good project for investors to invest in.
For Superior Living, the return of the project is 18%. Therefore, the hurdle rate of 20% is not a convenient rate to accept the project. If the hurdle rate is lower than 18% and we have no other projects then the return does compensate for the cost of capital plus the risk premium, so the project should be accepted (P.L.L.C., 2011).
References
P.L.L.C., T. M. (2011, July 23). Attorney and Fininacal Anlysis for the State Of Michigan. (J. L. Bills, Interviewer)
See my PPT Phase 2 Group Project for excel spreadsheet http://www.associatedcontent.com/slideshow/90469/superiors_income_statement_group_project.html?cat=3