Concept explainers
(1)
Net present value method is the method which is used to compare the initial
To calculate: The net present value of the investment.
(2)
Present value index:
Present value index is a technique, which is used to rank the proposals of the business. It is used by the management when the business has more investment proposals, and limited fund.
The present value index is computed as follows:
To calculate: The present value index of the investment.
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Accounting
- The expected cash flows of a project are as follows. Year Cash Flow -100000, 20,000 ,30,000 40,000 ,50,000 30,000 The cost of capital is 12 per cent. Calculate the following and evaluate the project under each methods a. net present value b. Profitability Index c. Internal rate of Return d. Modified internal rate of Return and Payback periodarrow_forwardGive typing answer with explanation and conclusion A six-year project has an initial requirement of $308,000 for fixed assets and $22,750for net working capital. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $89,120 and the discount rate is 7.50 percent. What is the profitability index?arrow_forwardAssume that the net present value of a project is $ 3870 at 10%, and -$1853 at 12%. Use linear interpolation to compute the rate of return correct to the nearest tenth of a percent. A) 11.2% B) 10.8% C) 10.5% D) 11.9% E) 11.4%arrow_forward
- A project has an initial cost of $61,450, expected net cash inflows of $11,000 per year for 10 years, and a cost of capital of 8%. What is the project's MIRR? Round your answer to two decimal places.arrow_forwardFind the net present value (NPV) and profitability index (PI) of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the project’s cost of capital is 8 percent.arrow_forward(Payback period, net present value, profitability index, and internal rate of return calculations) You are considering a project with an initial cash outlay of $76,000 and expected cash flows of $22,040 at the end of each year for six years. The discount rate for this project is 9.8 percent. a. What are the project's payback and discounted payback periods? b. What is the project's NPV? c. What is the project's Pl? d. What is the project's IRR? a. The payback period of the project is years. (Round to two decimal places.)arrow_forward
- REQUIRED Use the information provided below to calculate the following: 5.1 Payback Period of both projects (expressed in years, months and days). 5.2 Accounting Rate of Return (on initial investment) of Project Spik (expressed to two decima places). 5.3 Net Present Value of both projects. 5.4 Internal Rate of Return of Project Spik (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION Telco Ltd had to choose between purchasing machinery for two projects, Spik and Span, for which the following profits are forecast: Year 1 2 3 4 Spik R70 000 R70 000 R70 000 R70 000 Span R20 000 R60 000 R120 000 R70 000 Each project requires an investment of R800 000. Project Span is expected to have a scrap value of R40 000. The cost of capital is 12%. The straight-line method of depreciation is used. Ignore taxes.arrow_forward9) A project has an initial cost of $60,000, expected net cash inflows of $13,000 per year for 8 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places. ________yearsarrow_forwardConsider the following capital investment proposal: It requires an initial investment of $1 billion. The project is expected to generate cash flows of $200 million, $300 million, $400 million, and $500 million in the next four years. What is the IRR of the proposed investment? Enter your answer in percent, do not use the % symbol. Round your answer to two decimals.arrow_forward
- A project has cash flows of –$148,000, $43,000, $87,000, and $44,000 for Years 0 to 3, respectively. The required rate of return is 11 percent. Based on the internal rate of return of what percent for this project, you should accept or reject the project. Enter your answer in the first blank as a percent rounded to 2 decimal places, e.g., 32.16. Also enter either "accept" or "reject" in the second blank.arrow_forwardPerform a financial analysis of a project assuming that the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2,3 and 4. Estimated benefits are $0 in year 1 and $100,000 each year in Years 2,3 and 4. Use a 9 percentage, discount rate, round the discount factors to two decimal places. Create a table of financial template on the paper to calculate and clearly display the NPV, ROI and year in which payback occurs with the help of a graph. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.arrow_forwardA cash flow sequence has a receipt of $20,000 today, followed by a disbursement of $17,000 at the end of this year and again next year, and then a receipt of $13,100 three years from now. The MARR is 6 percent. a. What is the ERR for this set of cash flows? b. What is the approximate ERR for this set of cash flows? c. Would a project with these cash flows be a good investment? a. The ERR is%. (Round to two decimal places as needed.)arrow_forward
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