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Question three
For each of the following projects compute (i) pay-back period, (ii) post payback
profitability and (iii) post-back profitability index
- Initial outlay 50,000,000
Annual
Estimated life 8 Years
- Initial outlay 50,000,000
Annual cash inflow (after tax but before depreciation)
First three years Shs .15,000,000
Next five years Shs. 5,000,000
Estimated life 8 Years Salvage Shs. 8,000,000
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- Assignment equipment, the useful life of which is four years. The net cash flows for the two projects are provided in the table below: Net Cash Flow (GH¢) Project Year 1 Year 2 Year 3 Year 4 1 2,550 2,450 1,700 1,400 1,240 1,550 2,100 3,800 end of its life. i. Find the payback period for each project. Establish the net present value for each project using discount rate of 20%. Establish the net present value for each project using discount rate of 25%. Determine the internal rate of return for each project. iii. iv. Using the payback criterion and the internal rate of return criterion advice the proprietor on the project he should undertake, giving reasons for your choice of project. V. 70b) Following data relate to five independent investment projects : Initial Outlay Projects P ORST 1,000,000 240,000 184,000 11,500 80,000 Annual Cash Inflows Life in Years 250,000 24,000 30,000 4,000 12,000 8 15 20 5 10 Page 2 of 3 Assume a 10% required rate of return and a 50% tax rate. Rank these five investment projects according to each of the following criteria: (i) Pay-back Period. (ii) Accounting Rate of Return. (iii) Net Present Value Index. (iv) Internal Rate of Return.Payback Period and Accounting Rate of Return: Equal Annual Operating Cash Flows with Disinvestment Minn is considering an investment proposal with the following cash flows: Initial investment-depreciable assets $227,500 Net cash inflows from operations (per year for 10 years) 32,500 Disinvestment-depreciable assets 22,750 For parts b. and c., round answers to three decimal places, if applicable. a. Determine the payback period. 7 years b. Determine the accounting rate of return on initial investment. 5.495 c. Determine the accounting rate of return on average investment. 4.902
- Activity Three (Accounting Rate of Return - ARR) The expected cash revenues of two investment projects (A and B) for the next three years are provided in Table 2 below. As a financial consultant, you are required to evaluate whether to invest in Project A or Project B by employing the method of ARR (assume that there are no other costs). Required Tasks: Calculate the ARR for each project. Show the ranking of the projects based on the method of ARR and use critical analysis to advise your client accordingly as to the best investment action. Discuss the main advantages (+) of the methods of ARR as well as the main drawbacks (–). Year 0 (100) (100) Year 1 40 0 Year 2 50 80 Year 3 60 70(IRR calculation) Determine the IRR on the following projects: a. An initial outlay of $13,000 resulting in a single free cash flow of $17,207 after 7 years b. An initial outlay of $13,000 resulting in a single free cash flow of $47,031 after 14 years c. An initial outlay of $13,000 resulting in a single free cash flow of $110,851 after 23 years d. An initial outlay of $13,000 resulting in a single free cash flow of $13,624 after 4 years a. What is the IRR of a project with an initial outlay of $13,000 resulting in a single free cash flow of $17,207 after 7 years? % (Round to two decimal places.)3. Compute for Accounting Rate of return of A project of P650,000 is expected to generate the following cash flows over its useful life of 6 years: Year 1- P150,000, Year 2- P220,000, Year 3- P300,000, Year 4-P250,000, Year 5- P180,000, Year 6- P112,000, and the salvage value of P20,000 treated as the reduction in depreciable basis. Solution: Step 1: Computation of annual depreciation expenses: Step 2: Computation of average annual income: YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 Cash Inflows Depreciation Net income Average income%3D Step 3: Computation of accounting rate of return:
- Calculating IRR Compute the internal rate of return for the cash flows of the following two projects: Year Project A Project B 0 -$7,300 -$4,390 1 3, 940 2,170 2 3,450 2,210 3 2,480 1,730Consider the following two mutually exclusive projects: Year Cashflow (a) Cashflow (b) 0 - $318,844 -$27,476 1 $27,700 $9,057 2 $56,000 $10,536 3 $55,000 $11,849 4 $399,000 $13,814 The required return is 15 percent for both projects. Which one of the following statements related to these projects is correct?A. Because both the IRR and the PI imply accepting Project B, that project should be accepted.B. The profitability rule implies accepting Project A.C. The IRR decision rule should be used as the basis for selecting the project in this situation.D. Only NPV implies accepting Project A.E. NPV, IRR, and PI all imply accepting Project A.(IRR calculation) Determine the IRR on the following projects: a. An initial outlay of $12,000 resulting in a single free cash flow of $17,123 after 8 years b. An initial outlay of $12,000 resulting in a single free cash flow of $50,395 after 14 years c. An initial outlay of $12,000 resulting in a single free cash flow of $107,058 after 23 years d. An initial outlay of $12,000 resulting in a single free cash flow of $13,576 after 5 years Question content area bottom Part 1 a. What is the IRR of a project with an initial outlay of $12,000 resulting in a single free cash flow of $17,123 after 8 years? enter your response here% (Round
- 8. Calculating IRR Compute the internal rate of return for the cash flows of the foilowing two projects. Cash Flows Year Project A Project B -$8,100 -$5,400 2,900 4,600 2,200 2. 2,700. 3,100 2,300Help please The following details relate to a particular asset Future Cash flows (per annum) 90,000 Expected period of cash flows 3 years Discount Rate 10% Open market price of asset 210,000 Cost of asset 630,000 Accumulated depreciation 450,000 Calculate both : a)determine the recoverable amount for this asset b)Determine whether the asset is impairedProject x... Useful life 9years Initial cost : 286000 Annual revenues : 125000 Annual O&M cost: 73000 Salvage value:28600 Project Y Useful life 18years Initial cost: 184000 Annual revenues: 107000 Annual O&M cost:68000 Upgrade cost at the Th7 year :69000 Q1: Draw cash flow of the two projects and recommend one of the projects using Annual Worth method using i:6%.
