The ‘Falcon’ company is considering the possible investment in the Omega project. The Financial Director of the company has recommended that the decision should be based on the Net Present Value (NPV) method. The cost of the Omega project is £514,000. This project is estimated to have returns over a period of 4 years with an interest rate of 8.1%. The table below shows the expected cash flows (£) in the Omega project. i. The discount factors for years 1 and 2 are 0.9251 and 0.8558 respectively. Calculate the discount factors for years 3 and 4 showing your workings clearly. Your results should be accurate to four decimal places. ii. Calculate the present value of cash flows (£) using a three-decimal place of accuracy. iii. What type of variable is the present value of a cash flow (£)?
The ‘Falcon’ company is considering the possible investment in the Omega project. The Financial Director of the company has recommended that the decision should be based on the Net Present Value (NPV) method. The cost of the Omega project is £514,000. This project is estimated to have returns over a period of 4 years with an interest rate of 8.1%. The table below shows the expected cash flows (£) in the Omega project. i. The discount factors for years 1 and 2 are 0.9251 and 0.8558 respectively. Calculate the discount factors for years 3 and 4 showing your workings clearly. Your results should be accurate to four decimal places. ii. Calculate the present value of cash flows (£) using a three-decimal place of accuracy. iii. What type of variable is the present value of a cash flow (£)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
The ‘Falcon’ company is considering the possible investment in the Omega
project. The Financial Director of the company has recommended that the
decision should be based on the
of the Omega project is £514,000. This project is estimated to have returns
over a period of 4 years with an interest rate of 8.1%. The table below shows
the expected cash flows (£) in the Omega project.
i. The discount factors for years 1 and 2 are 0.9251 and 0.8558
respectively. Calculate the discount factors for years 3 and 4 showing
your workings clearly. Your results should be accurate to four
decimal places.
ii. Calculate the present value of cash flows (£) using a three-decimal
place of accuracy.
iii. What type of variable is the present value of a cash flow (£)?
Transcribed Image Text:The 'Falcon' company is considering the possible investment in the Omega
project. The Financial Director of the company has recommended that the
decision should be based on the Net Present Value (NPV) method. The cost
of the Omega project is £514,000. This project is estimated to have returns
over a period of 4 years with an interest rate of 8.1%. The table below shows
the expected cash flows (£) in the Omega project.
(d)
Year (end)
4
Cash Flows (£)
242,000
197,425
132,700
98,277
estion B4 continues next page
15
3.
2.
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