In: Accounting
Asnidah Danial is evaluating a new project for her firm, Kekal Sihat Sdn Bhd. She has
determined that the after-tax cash flows for the project will be RM10,000; RM12,000;
RM15,000; RM10,000; RM7,000; RM8,000 and RM9,000, respectively, for each of the
Years 1 through 7. The initial cash outlay will be RM40,000. DISCOUNT RATE 13%
(a)Pay Back Period (3 markah/marks)
(b) Discounted Pay Back Period (3 markah/marks)
(c) Net Present Value (4 markah/marks)
(a) Pay Back Period
Year | Cash flow | Cumulative Cash flow |
1 | RM10,000 | RM10,000 |
2 | RM12,000 | RM22,000 |
3 | RM15,000 | RM37,000 |
4 | RM10,000 | RM47,000 |
5 | RM7,000 | RM54,000 |
6 | RM8,000 | RM62,000 |
7 | RM9,000 | RM71,000 |
Year Cashflow
1 RM10,000 (RM47,000 - RM37,000)
? RM3,000 (RM40,000 - RM37,000)
= RM3,000 / RM10,000 = 0.3 years
Pay Back Period = 3 Years + 0.3 Years = 3.30 Years |
(b) Discounted Pay back period
Year | Cash flow | PVF @ 13% | Discounted Cash flow | Discounted Cumulative Cash flow |
1 | RM10,000 | 0.88500 | RM8,850 | RM8,850 |
2 | RM12,000 | 0.78315 | RM9,398 | RM18,248 |
3 | RM15,000 | 0.69305 | RM10,396 | RM28,644 |
4 | RM10,000 | 0.61332 | RM6,133 | RM34,777 |
5 | RM7,000 | 0.54276 | RM3,799 | RM38,576 |
6 | RM8,000 | 0.48032 | RM3,843 | RM42,419 |
7 | RM9,000 | 0.42506 | RM3,826 | RM46,245 |
Year Cashflow
1 RM3,843 (RM42,419 - RM38,576)
? RM1,424 (RM40,000 - RM38,576)
= RM1,424 / RM3,843 = 0.37 years
Discounted Pay Back Period = 5 Years + 0.37 Years = 5.37 Years |
(c) Net Present Value
Net Present Value = Discounted cash inflow - Discounted cash outflow |
Year | Cash flow | PVF @ 13% | Discounted Cash flow |
1 | RM10,000 | 0.88500 | RM8,850 |
2 | RM12,000 | 0.78315 | RM9,398 |
3 | RM15,000 | 0.69305 | RM10,396 |
4 | RM10,000 | 0.61332 | RM6,133 |
5 | RM7,000 | 0.54276 | RM3,799 |
6 | RM8,000 | 0.48032 | RM3,843 |
7 | RM9,000 | 0.42506 | RM3,826 |
0 | (RM40,000) | 1 | (RM40,000) |
Net Present Value | RM6,245 |
All the best...