Question

In: Accounting

An investment project requires an investment fund of Rp 200 billion with an economic life of...

An investment project requires an investment fund of Rp 200 billion with an economic life of 5 years with no residual value. The project's capital cost is 11%. Every year the project is predicted to provide net income of:

Year

Net Income

1

Rp 20 billions

2

Rp 22 billions

3

Rp 24 billions

4

Rp 26 billions

5

Rp 28 billions


By using the Accounting Rate of Return, NPV and MIRR methods, does the investment need to be carried out by the company

Solutions

Expert Solution

Accounting rate of return:

Year Net income
1                      20
2                      22
3                      24
4                      26
5                      28
                  120
/ n 5
Average net income                      24
/ Average investment                   100
ARR 24.00%

Accounting rate of return is 24%

NPV:

Year Cash flow × factor@ 11.00% Present value
0 $            (200.00) 1.0000 $                 (200.00)
1 $               20.00 0.9009 $                     18.02
2 $               22.00 0.8116 $                     17.86
3 $               24.00 0.7312 $                     17.55
4 $               26.00 0.6587 $                     17.13
5 $               28.00 0.5935 $                     16.62
$                            -  
$                            -  
$                            -  
$                            -  
$                            -  
NPV 3.6959 $                 (112.83)

NPV is -112.83

MIRR:

YEARS Amount ($) x factor @15% PV of Cash Outflows PV of Cash Inflows
0 $          (200)               1.00000 $    (200.00) $              -  
1 $        20.00               0.86957 $              -   $        17.39
2 $        22.00               0.75614 $              -   $        16.64
3 $        24.00               0.65752 $              -   $        15.78
4 $        26.00               0.57175 $              -   $        14.87
5 $        28.00               0.49718 $              -   $        13.92
Total $    (200.00) $        78.59
N= 5
MIRR = [PV inflows/PV outflows]^1/n×(1+r) -1
= [78.59/200]^1/5(1+0.15)-1
= -4.60%

MIRR is -4.60%

Project is not accepted as NPV is negative

please rate.


Related Solutions

A project requires an initial investment of $20,000,000. The life of the project is 3 years....
A project requires an initial investment of $20,000,000. The life of the project is 3 years. The $20,000,000 investment will be depreciated using the three-year modified accelerated cost recovery system (MACRS) class (see the table below). The firm estimates that, in the first year, the revenues and total production costs will be $60,000,000 and $45,000,000, respectively, in nominal terms. After that the sales and production costs are expected to increase at the inflation rate of 4 percent per year over...
A project in South Korea requires an initial investment of 2 billion South Korean Won. The...
A project in South Korea requires an initial investment of 2 billion South Korean Won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the 2 years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar and the value of the won is expected to remain constant over the next 2 years. Calculate the net present value...
A project in South Korea requires an initial investment of 2 billion South Korean won. The...
A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the two years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar, and the value of the won is expected to remain constant over the next two years. A) What is the NPV...
+Consider a Project that requires an initial investment of 2000 and generates cash flows of 200,...
+Consider a Project that requires an initial investment of 2000 and generates cash flows of 200, 600, 800 and 1200 in years 1 through 4. Use a discount rate of 10% Compute the Payback period (in years) for the project +Consider a Project that requires an initial investment of 2000 and generates cash flows of 200, 600, 800 and 1200 in years 1 through 4. Use a discount rate of 10% Compute the discounted payback period (in years) for the...
• The project requires $25 million in initial capital investment, and will have an economic lífe...
• The project requires $25 million in initial capital investment, and will have an economic lífe of 5 years. The investment will be straight-line depreciated down to a book value of zero at the end of 5 years. The investment is expected to be salvaged for $5 million at the end of 5 years. • The projected sales are $20 million per year from year 1 through year 5, variable costs are 50% of annual sales, and fixed costs are...
Disposable Income Consumption 0 $200 billion $200 billion 300 billion 400 billion 400 billion 600 billion...
Disposable Income Consumption 0 $200 billion $200 billion 300 billion 400 billion 400 billion 600 billion 500 billion 800 billion 600 billion How much is the marginal propensity to consume when disposable income rises from $600 billion to $800 billion? Select one: a. 0.65 b. 0.5 c. 0.75 d. 0.85
You are investing in a project that requires an initial investment of $500,000. The project will...
You are investing in a project that requires an initial investment of $500,000. The project will last for 10 years with the following additional cash flows (CF) at the end of each year: If the discount rate is 10%, calculate the payback periods in Excel for both the methods below; Years 1 2 3 4 5 6 7 8 9 10 CF -500,000 80,000 100,000 100,000 120,000 140,000 150,000 150,000 150,000 150,000 a) Payback Method [10] b) Discounted Payback Method...
Q1) A project requires an initial investment of $5,000. It is expected that the project will...
Q1) A project requires an initial investment of $5,000. It is expected that the project will last 3 years and generate net cash flows of $3,500 for each of these years. If the discount rate for the project is 10%, the discounted payback period for the project.is: Select one: a. 1.63 years b. 2.55 years c. 1 year d. More than 3 years Q2) Capital rationing refers to the limiting of capital resources to under-performing divisions. Select one: True False...
Project A: This project requires an initial investment of $20,000,000 in equipment which will cost an...
Project A: This project requires an initial investment of $20,000,000 in equipment which will cost an additional $3,000,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase raw goods inventory by $5,000,000, but it will also see an increase in accounts payable for $1,500,000. With this investment, the project will last 6 years at which time the market value for the equipment will...
Company XYZ is considering project A. Project A requires an initial investment of $75,000.
Company XYZ is considering project A. Project A requires an initial investment of $75,000. It generates $35,000 each year for the coming 3 years. What is the discounted payback period for this project if the proper discount rate is 18%?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT