Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid will require a £15 million upfront investment and will generate £2.5 million in savings for Facebook at the end of first year and its savings will grow at 3% per year for every in perpetuity. The second bid requires a £10 million upfront investment and will generate £3 million in savings each year starting at the end of first year in perpetuity. Assume that the cost of capital for this investment is 8%. What are the NPV and IRR for Facebook associated with each bid. Which bid is a better deal for Facebook? My solution:a) for the first bid, NPV= – £15m + £ 2.5m/ (8%-3%)=£ 35mIRR: NPV= 0 = – £15m + £2.5m/(IRR-3%) IRR= 19.67%for the second bid NPV= – £10m + £3m/8%= £27.5mIRR: NPV= 0 = – £10m + £3m/ IRRIRR= 30%b) For independent projects, both of bids with positive NPV and IRR are ok. For mutually exclusive projects, the first bid with higher NPV which is £35m, thus, the first bid is a better deal for Facebook. IRR are not suitable for compare with mutually exclusive projects. T
Facebook is considering two proposals
“Struggling with a similar assignment?” We can help!!
How it works – it’s easy
Place your Order
Submit your requirements through our small easy order form. Be sure to include and attach any relevant materials.
Make a payment
The total price of your order is based on number of pages, academic level and deadline.
We assign the assignment to the most qualified tutor. When the tutor completes the assignment, it is transferred to one of our professional editors to make sure that the assignment meets all of your requirements.
Once complete, we’ll send your assignment via the email provided on the order form.