Net present Value
| year | cash flow | C/(1+0.12)^ n | Discounted cash flow |
|
0 |
-110000 |
(110000) |
|
|
1 |
$20,000 |
17857.14 |
17857.14 |
|
2 |
$30,000 |
23915.82 |
23915.82 |
|
3 |
$40,000 |
28471.21 |
28471.21 |
|
4 |
$50,000 |
31775.9 |
31775.9 |
|
5 |
$70,000 |
39719.88 |
39719.88 |
| Total |
141740 |
||
| NPV |
31739.95 |
IRR =r a + (r b – r a )
Where r a = Lower discount rate chosen
R b = Higher discount rate chosen
N a = NPV at r a
N b = NPV at r b
Taking r a = 20 and r b =22
| year | cash flow | C/(1+0.2)^ n | Discounted cashflow | |
|
0 |
-110000 |
(110000) |
||
|
1 |
$20,000 |
16666.67 |
16666.67 |
|
|
2 |
$30,000 |
20833.33 |
20833.33 |
|
|
3 |
$40,000 |
23148.15 |
23148.15 |
|
|
4 |
$50,000 |
24112.65 |
24112.65 |
|
|
5 |
$70,000 |
28131.43 |
28131.43 |
|
| Total |
112892.2 |
|||
| NPV |
2892.233 |
|||
Delegate your assignment to our experts and they will do the rest.
| year | cash flow | C/(1+0.22)^ n | Discounted cashflow | |
|
0 |
-110000 |
(110000) |
||
|
1 |
$20,000 |
16393.44 |
16393.44 |
|
|
2 |
$30,000 |
20155.87 |
20155.87 |
|
|
3 |
$40,000 |
22028.28 |
22028.28 |
|
|
4 |
$50,000 |
22569.95 |
22569.95 |
|
|
5 |
$70,000 |
25899.95 |
25899.95 |
|
|
107047.5 |
||||
|
-2952.51 |
||||
IRR =20 + (22 – 20)
=20 + (0.4948434858*2)
= 20 +0.98968697
= 20.989686
MIRR =
=
=
= 1.137967 – 1
MIRR =0.138
Profit index =
=
=0.289
Straight Payback period = year before full recovery +
| year | cash flow | Cumulative cash flows |
|
0 |
-110000 |
|
|
1 |
$20,000 |
$20,000 |
|
2 |
$30,000 |
$50,000 |
|
3 |
$40,000 |
$90,000 |
|
4 |
$50,000 |
$140,000 |
|
5 |
$70,000 |
$210,000 |
= year before full recovery +
= 3 +
= 3 + 0.4
= 3.4 years
Discounted payback period
| year | cash flow | C/(1+0.12)^ n | Discounted cash flow | Cumulative discounted cash flows |
|
0 |
-110000 |
110000 |
||
|
1 |
$20,000 |
17857.14 |
17857.14 |
17857.14 |
|
2 |
$30,000 |
23915.82 |
23915.82 |
41772.96 |
|
3 |
$40,000 |
28471.21 |
28471.21 |
70244.17 |
|
4 |
$50,000 |
31775.9 |
31775.9 |
102020.1 |
|
5 |
$70,000 |
39719.88 |
39719.88 |
141740 |
Discounted payback period
=year before full recovery +
= 4 +
= 4 +0.2
= 4.2 years
References
Arnold, G. (2010). Financial Times handbook of corporate finance: a business companion to financial markets, decisions & techniques . New York, NY: Pearson Financial Times.
Drake, P. P., & Fabozzi, F. J. (2002). Capital budgeting: theory and practice . New York: John Wiley & Sons.
Gotze, U. (2015). Investment appraisal: methods and models . Place of publication not identified: Springer.
http://www.accaglobal.com, A. -. (19 Jul 2016). The internal rate of return. Retrieved June 02, 2017
Http://www.accaglobal.com, A. -. (18 Aug 2015). Modified internal rate of return. Retrieved June 02, 2017
Lee, A. C., Lee, J. C., & Lee, C. F. (2009). Financial analysis, planning & forecasting: theory and application . Singapore: World Scientific.
