Question

charge car p/l is considering a project to launch charging stations for electric cars around australia. The initial investment is expected to be$100,000,000 and the term of the project is 6 years the required rate of return from the project is 14% the annual cash flows are outlined in the following date end of year and cash flow p.a ($m)  year1 20 year2 22 year3 25 year4 30 year5 34 year6 37       

 a, Based on charge car required rate of return would you recommend proceeding with this investment.present all calculation to support the answer   

b, would you change your opinion if charge car required rate of return increased to 16% pa? Present all calculation to support your ans               

Answer 1

J18 fi A B D E F Н. 1 M N 1 2 3 4 Years 5 6 7 8 When Cost of capital is 14% Cash Flows Discount Rate @14% Present Value 0 -100 1 -100 1 20 0.877192982 17.54385965 2 22 0.769467528 16.92828563 3 25 0.674971516 16.87428791 4 30 0.592080277 17.76240832 5 34 0.519368664 17.65853459 6 37 0.455586548 16.85670226 Net Present Value 3.624078354 Millions 9 When Cost of capital is 16% Years Cash Flows Discount Rate @16% Present Value 0 -100 1 -100 1 20 0.862068966 17.24137931 2 22 0.743162901 16.34958383 3 25 0.640657674) 16.01644184) 4 30 0.552291098 16.56873294 5 34 0.476113015 16.18784252 6 37 0.410442255 15.18636342 Net Present Value -2.449656139 Millions Project Should Not Be accpeted as Net present value is Negative 10 11 12 13 14 Project Should Be accpeted as Net present value is Positive 15 16 17 18 19 Net Present Value Explanation: Net Present value refers to the present value of all the cash flow that the machine is going to generate in future. To compute Net present value, we first calculate the present value of discount factor which is WACC) using formulae = 1/(1+Rate)^Number of Year. After this, we multiply Present Value of discount factor by cash flows generated of each year. Then, The addition of all these cash flow is Net Present Value. 20 21 22

J5 X for Discount Rate @16% A B C D E F G H 1 K L M 1 2 3 4 5 Years 6 0 Years o 1 7 1 2 2 8 9 When Cost of capital is 14% Cash Flows Discount Rate @14% Present Value -100 =1/(1+14%)^B6 =C6*D6 20 =1/(1+14%)^B7 =C7*D7 22 =1/(1+14%)^B8 =C8*D8 25 1=1/(1+14%) “B9 =C9*D9 30 =1/(1+14%)^B10 1=C10*D10 34 =1/(1+14%)^B11 =C11*011 37 |=1/(1+14%)^B12 =C12*D12 Net Present Value =SUM(E6:E12) When Cost of capital is 16% Cash Flows Discount Rate @16% -100 =1/(1+16%)^H6 20 =1/(1+16%)^H7 22 =1/(1+16%)^H8 25 =1/(1+16%)^H9 130 =1/(1+16%)^H10 34 =1/(1+16%)^H11 37 =1/(1+16%)^H12 Net Present Value 3 3 Present Value =16*J6 =17*17 |=18*J8 =19*29 =110*110 =111*J11 =112*J12 =SUM(K6:K12) 10 4 14 11 5 5 6 6 Millions Millions 12 13 14 15 Project Should Be accpeted as Net present value is Positive Project Should Not Be accpeted as Net present value is Negative 16 17 18 19 20 21 22 Net Present Value Explanation: Net Present value refers to the present value of all the cash flow that the machine is going to generate in future. To compute Net present value, we first calculate the present value of discount factor which is WACC using formulae = 1/(1+Rate) Number of Year. After this, we multiply Present Value of discount factor by cash flows generated of each year. Then, The addition of all these cash flow is Net Present Value. Sheet1 +