Note: ( in *1000 TL )
a.
Calculation of Net cash flows = Revenues - Costs
Calculation of cummulative cash flows = Sum of Net cash flows
Solution is as under;
Years. Net cash flows. Cumulative cash flows
0. 0-1000= -1000 -1000= -1000
1. 0-500= -500 -1000-500= -1500
2. 2500-1500=1000 -1500+1000= -500
3. 4000-2000= 2000 -500+2000= 1500
4. 5000-2000=3000 1500+3000=4500
5. 3000-1000=2000 4500+2000=6500
6. 2000-1000=1000 6500+1000= 7500
7. 1000-0= 1000 7500+1000=8500
8. 1000-0=1000 8500+1000=9500
b.
For calculating pay back period, we should find the present value of all the costs incurred in different years.(Discount rate @ 7%)
a.Years | b.cost | c.discounting factor(7%) | b*c |
0 | 1000 | 1 | 1000 |
1 |
500 | 0.935 | 467.5 |
2 | 1500 | 0.873 | 1309.5 |
3 | 2000 | 0.816 | 1632 |
4 | 2000 | 0.762 | 1524 |
5 | 1000 | 0.713 | 713 |
6 | 1000 | 0.666 | 666 |
7 | - | - | - |
8 | - | - | - |
Total | 7312 |
Present or dicounted value of costs = 7312
Revenue for first four years is 11500, 4 years. = 11,500
For x years. = 7312
We have to find x( pay back period), = 4*7312/11500 = 2.54 years
c.
Net present value = Sum of present values of revenues - sum of present values of costs
a.Year | b.cost | c.revenue | d.Discounting factor (7%) | e.Discounted cost (b*d) | f.Discounted revenue (c*d) |
0 | 1000 | - | 1 | 1000 | - |
1 | 500 | - | 0.935 | 467.5 | - |
2 | 1500 | 2500 |
0.873 |
1309.5 | 2182.5 |
3 | 2000 | 4000 | 0.816 | 1632 | 3264 |
4 | 2000 | 5000 | 0.762 | 1524 | 3810 |
5 | 1000 | 3000 | 0.713 | 713 | 2139 |
6 | 1000 | 2000 | 0.666 | 666 | 1332 |
7 | - | 1000 | 0.623 | - | 623 |
8 | - | 1000 | 0.582 | - | 582 |
Total | 7312 | 13932.5 |
Net present value= f-e (from table)
= 13932.5 - 7312 = 6620.5
d. Yes, we can invest in the project. The reason is, net present value is positive.
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