you are to find a business for sale, project the cash flows, and calculate the NPV...

you are to find a business for sale, project the cash flows, and calculate the NPV to determine whether the business is worth buying based on NPV and your overall evaluation. You may wish to visit a business broker website as they list businesses for sale, usually provide latest year cash flow and the price of the business. You need to:

1. Qualitatively assess the business. Why is it viable in the long run? If it’s not then choose another business as why would you perform a valuation and evaluation of a business you thought was not viable?

2. Predict cash flows based on your assessment of the business, changes you would make if any and how they affect CF's. You can also choose a growth rate to predict CF's but you have to justify the choice of g.

3. Choose a discount rate (k).

4. Calculate PV, NPV and IRR.

5. Make a recommendation on the business decision.

Solutions

Expert Solution

Take for example the below figures:

Cost of Capital - 12%
Initial Cost of Project - $425,000
Cash Inflows Year 0 1 2 3 4 5
Cash Flow $495,000.00 $495,000.00 $495,000.00 $495,000.00 $495,000.00
Cash Outflow

Year 0 1 2 3 4
5
$310,000.00 $310,000.00 $310,000.00 $310,000.00 $310,000.00

Cost of Capital	12.00%
Initial cost of project	$425,000.00

Cash Inflows	Year	0	1	2	3	4	5
Cash Flow			$495,000.00	$495,000.00	$495,000.00	$495,000.00	$495,000.00
PV of Cash Flow			$441,964	$394,611	$352,331	$314,581	$280,876
Cumulative Cash Flow			$441,964	$836,575	$1,188,906	$1,503,488	$1,784,364

Cost
Initial cost of project		$425,000.00
Cash Outflow			$310,000.00	$310,000.00	$310,000.00	$310,000.00	$310,000.00
PV of Cash Outflow		$425,000.00	$276,786	$247,130	$220,652	$197,011	$175,902
Cumulative Cash Outflow		$425,000.00	$701,786	$948,916	$1,169,568	$1,366,578	$1,542,481

	Manual	NPV Fx
NPV of Project	$241,884	$241,884
IRR	33.11%
ROI	15.68%


Helper Cells for Functions:
Cash Flow		-$425,000.00	$185,000.00	$185,000.00	$185,000.00	$185,000.00	$185,000.00

This project is feasible

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Calculate the NPV for Project A and accept or reject the project with the cash flows...

Calculate the NPV for Project A and accept or reject the project with the cash flows shown below if the appropriate cost of capital is 7% Project A Time 0 1 2 3 4 5 Cash Flow -990 350 480 500 630 120 2) Calculate the NPV for project L and recommend whether the company should accept or reject the project. Cost of Capital is 6% Project L Time 0 1 2 3 4 5 Cash Flow - 8,600 ...

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 the NPV for a 3-year project with the following cash flows and a required return...

Calculate the NPV for a 3-year project with the following cash flows and a required return of 15%: CF0 = -$800,000 ATCF1 = $160,000 ATCF2 = $160,000 ATCF3 = $160,000 ATER = $600,000 Calculate the IRR for a 2-year project with the following cash flows and a required return of 12%: CFO = -$375,000 ATCF1 = $27,500 ATCF2 = -$134,800 ATER = $596,000 ATER = After-Tax Equity Reversion ATCF = After-Tac Cash Flow Please show me how you answer the...

Given the cash-flows in the table, what is the NPV of project A?

1. Project A Year Cash Flow 0 -$107 1 $69 2 $80 3 $120 WACC = 6.19% Given the cash-flows in the table, what is the NPV of project A? State your answer to the nearest penny. Give just the number with no dollar sign (e.g., 3.26) If the NPV is negative include the - sign (e.g. -4.28) 2. Using the information in the table, what is the IRR for Project A? Cash Flow Year Project A 0 ($175) 1...

These are the cash flows for two projects. Calculate the NPV and IRR for both. Then...

These are the cash flows for two projects. Calculate the NPV and IRR for both. Then select the best project according to the NPV measure. Use a WACC of 10% for both projects. The investments are 7 for project 1, and 8 for project 2. Cash flows for project 1 year 1 2 3 4 cash 4 6 2 4 Cash flows for project 2 year 1 2 3 4 cash 3 2 7 4 Calculate the NPV for project...

You have computed the NPV of a project to be $30 million, using expected cash flows...

You have computed the NPV of a project to be $30 million, using expected cash flows and a risk-adjusted discount rate. You are, however, concerned that you may have made errors on estimating the cash flows and the discount rate. Which of the following make you feel more comfortable with taking the project, given this fear? Select one: a. The project NPV is very sensitive to changes in your discount rate b. In your best case scenario, the project has...

6 You have the following cash flows: FIND the IRR, NPV (using 8 %), and the...

6 You have the following cash flows: FIND the IRR, NPV (using 8 %), and the Profitability Index (Bang for your buck) T0 = -1250 IRR = _______________%_ T1 = 350 NPV = __$______________ T2 = 450 PI = __$______________ T3 = 450 T4 = 550

Calculate the NPV given the following cash flows YEAR CASH FLOWS 0 -60,000 1 25,000 2...

Calculate the NPV given the following cash flows YEAR CASH FLOWS 0 -60,000 1 25,000 2 25,000 3 15,000 4 15,000 5 10,000 6 10,000 if the appropriate required rate of return is 8 percent. Should the project be accepted? What is the project's NPV?

What is NPV, IRR, PI, MIRR of a project with the following cash flows if the...

What is NPV, IRR, PI, MIRR of a project with the following cash flows if the discount rate is 14 percent? Year CF 0 -18,000 1 5000 2 7500 3 8400 4 2100 Also upload your excel files showing your work.

Given the following information, estimate the cash flows of this project and then compute the NPV...

Given the following information, estimate the cash flows of this project and then compute the NPV of this project. Estimated Sales: 50,000 units per year for each of the next 3 years Estimate Sale Price: $1,050 per unit Variable Cost: $1,000 per unit Fixed Costs: $1,500,000 per year Initial Investment in Plant and Machinery: $1,500,000 to be depreciated to a salvage value of $0 over the next three years. We sell the machine at $45000 in the market at the...

Subjects