| Course | FIN-7100 Financial Management |
|---|---|
| Module | Module 2 |
| Paper type | Written assignment 2: investment decision techniques and security analysis |
| Length | About 1,017 words, 6 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Master of Business Administration |
| Updated | October 2026 |
Free sample paper for FIN 7100 Module 2
An 18.6 Percent IRR That Beats a 25 Percent One, and What $264.74 Assumes About Johnson & Johnson's Dividend
Student Name
Master of Business Administration (MBA), Thomas Edison State University
FIN-7100: Financial Management
Mentor Name
Month Day, Year
An 18.6 Percent IRR That Beats a 25 Percent One, and What $264.74 Assumes About Johnson & Johnson's Dividend
This assignment has two parts. Part 1 applies the investment decision rules from Berk and DeMarzo (2020) to three projects proposed at a composite family-owned coatings manufacturer in Trenton, New Jersey, whose owner is a client of the advisory practice where I work. The three represent the categories the course objectives name: a revenue enhancement, a cost reduction and an investment required by regulators. Part 2 turns to security analysis and asks what the market price of Johnson & Johnson stock, $264.74 at the close on September 30, 2026, implies about its future dividends, and how a high-grade corporate bond is valued at current yields.
Part 1: Three Projects and Four Rules
Every project was given an eight-year life and evaluated at the firm's 10 percent cost of capital. Project A is a second production line for industrial floor coatings, costing $4.2 million and expected to add $1.05 million a year in after-tax cash flow. Project B replaces lighting and recovers oven heat for $900,000, saving $260,000 a year. Project C is a wastewater pretreatment system costing $1.6 million that the local sewerage authority requires before the plant's discharge permit is renewed; it saves only about $40,000 a year in surcharges.
| Project | Cost | Annual cash flow | NPV at 10% | IRR | Payback (years) | Profitability index |
|---|---|---|---|---|---|---|
| A: Second production line | $4,200,000 | $1,050,000 | $1,401,673 | 18.6% | 4.0 | 1.33 |
| A2: Smaller line (alternative to A) | $1,500,000 | $450,000 | $900,717 | 25.0% | 3.3 | 1.60 |
| B: Lighting and heat recovery | $900,000 | $260,000 | $487,081 | 23.6% | 3.5 | 1.54 |
| C: Wastewater pretreatment | $1,600,000 | $40,000 | minus $1,386,603 | Negative | Never | 0.13 |
What the Rules Say
Berk and DeMarzo (2020) argue that the NPV rule is the one that reliably serves shareholders, because it measures the value a project adds today, and that the other rules agree with NPV only in some situations. Projects A and B both have positive NPVs and IRRs above 10 percent, so every rule accepts them.
The rules part company over the choice between Project A and a smaller alternative line, A2, which the plant engineer proposed as a cheaper option. The two are mutually exclusive, since the building has room for only one. A2 has the higher IRR, 25.0 percent against 18.6 percent, the shorter payback and the higher profitability index. Yet A adds about $500,000 more value. IRR and profitability index favor A2 because they measure return per dollar, not total value created, and with no shortage of capital the owner should prefer the larger NPV. Graham and Harvey (2001) found that most chief financial officers surveyed used both NPV and IRR, and that many smaller firms leaned on payback, so the conflict is a practical one, not only a textbook case.
Project C fails every rule, yet it must be done: without it the plant cannot operate. For a mandatory investment the right question is not whether to invest but how to comply at the lowest present cost. The engineer is pricing a leased unit with a service contract, and the two options should be compared on the present value of their costs. Its negative NPV also reminds the owner that the true return on Project A is lower than it looks, since keeping the plant open is a condition of earning it.
Part 2: Valuing Johnson & Johnson Stock
Security analysis applies the same logic: a share is worth the present value of the cash it will pay. Johnson & Johnson raised its quarterly dividend to $1.34 in 2026, an annual rate of $5.36. To discount it, I estimated the required return with the capital asset pricing model (Sharpe, 1964). A regression of the stock's sixty monthly returns from October 2021 to September 2026 against the S&P 500 gives a beta of only 0.22, low because much of the stock's movement came from company-specific news. Blume (1971) found that estimated betas drift toward 1 over time, so I adjusted it to about 0.48. With a 10-year Treasury yield of 5.29 percent and an assumed premium of 5.5 percentage points for bearing market risk, the required return is about 7.9 percent.
The constant-growth dividend discount model values the stock at next year's dividend divided by the difference between the required return and the growth rate. At 4 percent growth the share would be worth about $142, at 5 percent about $193 and at 5.5 percent about $234. Only at a growth rate of about 5.8 percent a year, forever, does the model reach the market price. That is not unreasonable for a company that has raised its dividend every year for decades, but it leaves little room for error: the value is very sensitive to the growth assumption, and growth three-tenths of a point lower removes about $30 a share. The analysis does not say the stock is overpriced; it says what an investor must believe to pay $264.74.
Valuing a Corporate Bond
Bonds are easier to value because their cash flows are fixed. Consider a ten-year bond from a top-rated industrial issuer paying a 4.9 percent coupon semiannually, when such bonds yield about 0.45 percentage points above the 5.29 percent Treasury rate, or 5.74 percent. Discounting twenty payments of $24.50 and the $1,000 principal at 2.87 percent per half-year gives a price of about $936.76, a discount to face value since its 4.9 percent coupon pays less than the 5.74 percent investors now demand. The bond's yield to maturity is its IRR, and buying it at that price has an NPV of zero for an investor who requires 5.74 percent, which is what a fairly priced security should offer.
Conclusion
The coatings maker should build the larger line, Project A, and the heat-recovery project, B, and should comply with the wastewater requirement at the lowest present cost. Where the decision rules disagree, NPV should decide. In security analysis the same discounting shows that Johnson & Johnson's price assumes long-run dividend growth of nearly 6 percent, a belief an investor should examine before buying, and that a high-grade bond's price follows directly from current yields.
References
Berk, J., & DeMarzo, P. (2020). Corporate finance: The core (5th ed.). Pearson.
Blume, M. E. (1971). On the assessment of risk. The Journal of Finance, 26(1), 1-10. https://doi.org/10.1111/j.1540-6261.1971.tb00584.x
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442. https://doi.org/10.1111/j.1540-6261.1964.tb02865.x
What the FIN 7100 Module 2 instructions ask for
Module 2 of FIN-7100 covers techniques for investment decisions and security analysis, linked to the objectives on applying investment decision rules to select the best projects, on capital budgeting for revenue enhancement, cost reduction and mandatory investments, and on the opportunity cost of capital. Expect to calculate and compare NPV, IRR and related rules and to value stocks and bonds using the textbook's chapters. Since the final project asks you to act as an investment manager researching public companies, using a real company here gives you a head start on that work. Date every price and yield you use, since valuations change with the market, and say where each came from.
How this FIN 7100 Module 2 example is built
Part 1 sets out four projects in one table, with every rule's result visible at once. The discussion explains why NPV is preferred, works through a mutually exclusive pair where IRR and NPV disagree, and treats the mandatory project as a least-cost problem rather than a rejection. Part 2 builds the required return from a regression beta, adjusts it with research on beta drift, and turns the dividend discount model around to find the growth rate the price implies, with a sensitivity range. The bond valuation shows yield to maturity as an IRR, tying the two parts of the assignment together. Every assumption, from the spread to the risk premium, is stated so the mentor can test it.
Where the marks sit in the FIN 7100 Module 2 rubric
Mentors grade FIN-7100 written assignments from 0 to 100. Strong papers calculate each rule correctly, state the discount rate and cash flow assumptions, and explain disagreements between rules instead of reporting them. In security analysis, credit goes to a required return that is justified step by step and to an honest discussion of how sensitive the valuation is. Real market data with dates, research beyond the textbook and correct APA style all count toward the graduate standard of B-level work or better. Explaining what a valuation assumes, rather than declaring a stock cheap or dear, reads as mature analysis and earns credit even when the conclusion is cautious.
FIN 7100 Module 2 help: mistakes that cost marks
A common error is choosing between mutually exclusive projects by IRR, which favors small, quick projects even when a larger one creates more value. Another is rejecting a mandatory project because its NPV is negative instead of finding the cheapest way to comply. In stock valuation, students often plug in a growth rate without testing how much the answer depends on it. Bond answers also go wrong when annual and semiannual rates are mixed. Keep the two parts connected, since both rest on the same idea of discounting. Our writers can prepare a FIN 7100 investment decisions assignment using the company and projects you are studying.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Thomas Edison State University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
More FIN 7100 and Master of Business Administration sample papers
- FIN 7100 Module 1: Statements and TVM Written Assignment
- FIN 7100 Module 3: Risk and Return Interim Report
- FIN 7100 Module 4: Capital Structure Written Assignment
- FIN 7100 Module 5: Final Investment Recommendation Paper
- FSA 7120 Module 1: Written Assignment: Reading Statements With a Skeptic's Eye
- SOM 7020 Module 1: Social Media Briefing Note
- MCO 7400 Module 7: A Change Communication Plan
- MKM 7000 Module 3: Value Delivery Challenge Questions
FIN 7100 Module 2 questions, answered
Where can I find a free FIN 7100 Module 2 sample paper?
The second Financial Management written assignment is reproduced above: NPV, IRR, payback and profitability index for three kinds of project, then valuations of Johnson & Johnson stock and a corporate bond, with references.
Why can IRR and NPV rank projects differently?
IRR measures the rate of return per dollar while NPV measures total value added, so for mutually exclusive projects of different sizes the smaller one may have a higher IRR but a lower NPV.
How should a mandatory project with a negative NPV be handled?
It must be done to keep operating, so the task is to compare ways of complying and choose the one with the lowest present value of costs.
What does an adjusted beta do?
It moves a historical beta part of the way toward 1, reflecting evidence that betas drift toward the market average over time.
How many written assignments does FIN-7100 have?
Three, worth 25 percent of the course grade together.