Question

Given the cash flows below, calculate the NPV, the NPVI Ratio,
the IRR and the Equivalent Annual Value of the project using a
**9%** pa cost of capital. Ignore inflation and taxes.
Show all your working and explain your processes.

0 -20000

1 9000

2 8000

3 9100

4 9000

5 6000

Answer #1

NPV: $ 12,292.60

Year |
Cash Flows |
PV Factor at 9
% |
Present Values |

1 | $ 9,000 | 0.91743 | $ 8,256.87 |

2 | 8,000 | 0.84168 | 6,733.44 |

3 | 9,100 | 0.77218 | 7,026.84 |

4 | 9,000 | 0.70843 | 6,375.87 |

5 | 6,000 | 0.64993 | 3,899.58 |

Present value of cash inflows | $ 32,292.60 | ||

Less: Initial Investment | 20,000 | ||

NPV | $ 12,292.60 |

NPVI = $ 12,292.60 / 20,000 = 0.6146 or 61.46 %

IRR : 32%

Spreadsheet calculation of IRR:

A | B | C | D | E | F | G | |

1 | Year | 0 | 1 | 2 | 3 | 4 | 5 |

2 | Cash Flow | (20,000) | 9,000 | 8,000 | 9,100 | 9,000 | 6,000 |

3 | =IRR(B2:G2) | 32% |

Equivalent Annual Value = Net Present Value / PVIFA9%, n=5 = $ 12,292.60 / 3.8897 = $ 3.160.30

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Year
0
1
2
3
4
5
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$-37004
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$5350
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3,000
15,000
3
4,000
3,000
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12,000
4,000
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15,000
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Group of answer choices
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1) Life Period of the Equipment = 4 years
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$ 200,000
2) New equipment cost
$ (200,000)
9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
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5) Inventory increase
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11) Depreciation (Straight Line)/YR
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(a) Develop proforma Project Income
Statement Using Excel Spreadsheet
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1) Life Period of the Equipment = 4 years
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$ 200,000
2) New equipment cost
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9) Sales increase per year
4%
3) Equipment ship & install cost
$ (25,000)
10) Operating cost:
$ (120,000)
4) Related start up cost
$ (5,000)
(60 Percent of Sales)
-60%
5) Inventory increase
$ 25,000
11) Depreciation (Straight Line)/YR
$ (60,000)
6) Accounts Payable...

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