Years | ||||||
0 | 1 | 2 | 3 | 4 | ||
Investment Outlay | ||||||
Equipment cost | ($350,000) | |||||
Shipping and installation | ($70,000) | |||||
Increase in inventory | ($55,000) | |||||
Increase in accounts payable | $18,000 | |||||
Total initial investment | ($457,000) | |||||
Operating cash flow | $ 113,990 | $ 96,350 | $ 140,450 | $ 152,210 | ||
Total termination cash flow | $ 53,250 | |||||
Project Cash Flows | ||||||
Net cash flows | ($457,000) | $113,990 | $96,350 | $140,450 | $205,460 | |
Required return (used as the discount rate) | 12% | |||||
Payback period | (2.22) | |||||
Present value of net cash inflows | ||||||
Present value of cash outflows | ||||||
Profitability index | ||||||
Internal rate of return (IRR) | ||||||
Net present value (NPV) |
Formula | Year (n) | 0 | 1 | 2 | 3 | 4 |
Net cash flows (NCF) | (4,57,000) | 1,13,990 | 96,350 | 1,40,450 | 2,05,460 | |
1/(1+d)^n | Discount factor @ 12% | 1.000 | 0.893 | 0.797 | 0.712 | 0.636 |
(NCF*Discount factor) | PV of NCF | (4,57,000.00) | 1,01,776.79 | 76,809.63 | 99,969.54 | 1,30,573.54 |
Sum of all PVs | NPV | (47,870.50) | ||||
Using IRR function | IRR | 7.44% | ||||
(NPV-Initial investment)/Initial investment | Profitability Index | 0.90 |
Year (n) | 0 | 1 | 2 | 3 | 4 | |
NCF | (4,57,000) | 1,13,990 | 96,350 | 1,40,450 | 2,05,460 | |
NCFn + CNCFn-1 | Cumulative NCF (CNCF) | (4,57,000) | (3,43,010) | (2,46,660) | (1,06,210) | 99,250 |
CNCF3/NCF4 | Fraction of year 4 | 0.52 | ||||
(3+Fraction of year 4) | Payback period (in years) | 3.52 |
Years 0 1 2 3 4 Investment Outlay Equipment cost ($350,000) Shipping and installation ($70,000) Increase in inventory ($55,000) Increase in ac...
0 1 2 3 4 Total initial investment ($457,000) Operating Cash Flows Unit sales 250,000 250,000 250,000 250,000 Price per unit $2.50 $2.50 $2.50 $2.50 Total revenues $ 625,000 $ 625,000 $ 625,000 $ 625,000 Total costs $ 236,400 $ 186,000 $ 312,000 $ 345,600 Operating income $ 388,600 $ 439,000 $ 313,000 $ 279,400 Taxes on operating income 136,010 153,650 109,550 97,790 After-tax operating income $ 252,590 $ 285,350 $ 203,450 $ 181,610 Operating cash flow $ 113,990 $ ...
A. The excess of the present value of future cash flows over the initial investment outlay for a project is the: 1. Internal rate of return (IRR) of the project 2. Modified internal rate of return (MIRR) on the project 3. Book (accounting) rate of return for the project 4. Net present value (NPV) of the project 5. Modified internal rate of return (MIRR) of the project B. Items that have cash flow effects during the operating phase of an...
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Ch.15_104_005. A $350,000 capital investment proposal has an estimated life of four years and no residual value. The estimated net cash flows are as follows: Year Net Cash Flow Year Net Cash Flow $150,000 $104,000 130,000 90,000 The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. Determine the net present value.
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