Solution 1:
Computation of NPV - Clare Valley | ||||
Particulars | Period | Amount | PV factor at 10% | Present Value |
Cash outflows: | ||||
Cost of expansion | 0 | $9,000,000.00 | 1 | $9,000,000 |
Present Value of Cash outflows (A) | $9,000,000 | |||
Cash Inflows | ||||
Annual cash inflows | 1-8 | $2,128,581.00 | 5.335 | $11,355,980 |
Salvage value | 8 | $700,000.00 | 0.467 | $326,900 |
Present Value of Cash Inflows (B) | $11,682,880 | |||
Net Present Value (NPV) (B-A) | $2,682,880 |
As NPV is positive, investment is attractive.
Solution 2:
Computation of NPV - Clare Valley | ||||
Particulars | Period | Amount | PV factor at 10% | Present Value |
Cash outflows: | ||||
Cost of expansion | 0 | $9,000,000.00 | 1 | $9,000,000 |
Present Value of Cash outflows (A) | $9,000,000 | |||
Cash Inflows | ||||
Annual cash inflows | 1-8 | $2,128,581.00 | 5.335 | $11,355,980 |
Present Value of Cash Inflows (B) | $11,355,980 | |||
Net Present Value (NPV) (B-A) | $2,355,980 |
As NPV is still positive, therefore investment is attractive.
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