Question

In: Accounting

Calculate NPV for a project with a period of 10 years, opportunity cost is 14%. a....

Calculate NPV for a project with a period of 10 years, opportunity cost is 14%.

a. Initial investment USD 10,000 and cash inflows each year is USD 2,000

b. Initial investment USD 25,000 and cash inflows each year is USD 3,000

c. Initial investment USD 30,000 and cash inflows each year is USD 5,000

Expert Solution

The formula for NPV is: Present value of cash inflow - Present value of cash outflow

Now we have to know the formula for calculating the present value of an annuity.

So the formula for calculating PV of an annuity is:

PV of Annuity=C×[1−(1+i)⁻ⁿ] / i

A=annuity per period

i=interest rate

n=number of payments

PV of Annuity= Annuity * PVIFA for i rate for n years

In the given question period is 10years and the interest rate/discounting rate is 14 %.

So first we will calculate PVIFA for 10 years at 14% discounting rate. and which is 5.2161( from above formula or you can calculate it on excel)

a. Initial investment USD 10,000 and cash inflows each year is USD 2,000:

NPV = 2000*PVIFA - 10000

= 2000*5.2161 -10000

=10432.2-10000

= USD 432.2

b. Initial investment USD 25,000 and cash inflows each year is USD 3,000

NPV = 3000*PVIFA - 25000

= 3000*5.2161 -25000

=15648.3-25000

= USD (9351.7) [negative]

c. Initial investment USD 30,000 and cash inflows each year is USD 5,000

NPV = 5000*PVIFA - 30000

= 5000*5.2161 -30000

=26080.5-30000

= USD (3919.5) [negative]

ekkarill92 answered 1 year ago

Note the payback period for each project. Calculate the NPV for each project assuming discount rates of 10%, 12% and 14% (round your answers to whole dollars).

Project Number 1 2 3 4 5 6 7 8 Initial Investment ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) ($2,000) Year 1 $330 $1,666 $160 280 $2,200 $1,200 ($350) 2 330 334 200 280 900 (60) 3 330 165 350 280 300 60 4 330 395 280 90 350 5 330 432 280 70 700 6 330 440 280 1,200 7 330 442 280 2,250 8 1,000 444 280 9 446 280 10 448 280 11 450 280 12 451 ...

. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For...

. For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years. Project A= Required rate of Return= 16.30% Project B= R= 12.50% Project C= R= 15.35% Project D= R= 17.25% Expected cash flows for the four...

Project 1 Payback period = 2 years 9 months NPV = £2,041

Project 1Payback period = 2 years 9 monthsNPV = £2,041APR = 22.08%Project 2Payback period = 2 years 10 monthsNPV = £3,995APR = 26.19% Based on the above, which project is best to invest in?

For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each...

For each project, calculate the NPV, IRR, profitability index (PI) and the payback period. For each capital budgeting decision tool, indicate if the project should be accepted or rejected, assuming that each project is independent of the others. Important Note: The venture capital folks have a firm maximum payback period of four years. Risk free rate = 1.10%, MRP = 9.5%, Required return = 14.40% Yes excel is fine Expected cash flows for the four potential projects that Avalon is...

Consider the following three projects; assume 14 percent cost of capital. Period Project A Project...

Consider the following three projects; assume 14 percent cost of capital. Period Project A Project B Project C T=0 ($3,000) ($5,000) ($2,000) T=1 $1,000 $1,500 $900 T=2 $1,200 $1,500 $900 T=3 $1,500 $2,500 $700 T=4 $1,500 $2,500 $700 When you have only $5,000 to support the above projects, which project (or projects) should be chosen under the Profitability Index?

Considering discount rate of 14%, calculate NPV, Benefit Cost Ratio, and Present Value Ratio for the...

Considering discount rate of 14%, calculate NPV, Benefit Cost Ratio, and Present Value Ratio for the following investment and explain if it is a good investment. C=10,000 C=8,000 C=6,000 I=7,500 I=7,500 ... I=7,500 L=10,000 0 1 2 3 4 ... 10 C: Cost, I:Income, L: Salvage value

Calculate the NPV of a 20-year project with a cost of $300,000 and annual cash flows...

Calculate the NPV of a 20-year project with a cost of $300,000 and annual cash flows of $25,000 in years 1-10 and $50,000 in years 11-20. The company's required rate of return is 10%

Calculate NPV for each project. Please workout problem.. Discount rate 10% Year Project A Project B...

Calculate NPV for each project. Please workout problem.. Discount rate 10% Year Project A Project B Project C 2018 ($3,000,000) ($3,000,000) ($3,200,000) 2019 $0 $975,000 $985,000.00 2020 $600,000 $975,000 $925,000.00 2021 $900,000 $975,000 $1,000,000.00 2022 $3,000,000 $1,000,000 $950,000.00

A project has an initial cost of $58,425, expected net cash inflows of $10,000 per year for 10 years, and a cost of capital of 10%. What is the project's NPV?

A project has an initial cost of $58,425, expected net cash inflows of $10,000 per year for 10 years, and a cost of capital of 10%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

What is the NPV of the project? Project life: 3 years Equipment: Cost: $18,000 Economic life:...

What is the NPV of the project? Project life: 3 years Equipment: Cost: $18,000 Economic life: 3 years Salvage value: $4,000 Initial investment in net working capital: $2,000 Revenue: $13,000 in year 1, with a nominal growth rate of 5% per year Fixed cost: $3,000 in year 1 Variable cost: 30% of revenue Corporate tax rate (T): 40% WACC for the project: 10% This project does not create incidental effect.