Assignment for Business Finance Mbs605

The NPV of an investment proposal is found by adding the present values of all of its estimated

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.

By computing the highest discount rate at which a project will have a positive NPV, the IRR method is supposed to assure that the actual rate of return on an accepted project is higher than the required rate of return.

Evaluating the risks, calculating the probability of success, and factoring in the projected profit from sales will provide a clearer NPV to be compared with other projects in the

Now we want to examine the analysis business report concerning the cost of capital that has been increased at 28% in accordance with the Net Present Value which is $500,000 the question being would still be worth it to make the investment to the company (Needles, 2010). While at the same time the internal rate of return is still at 21% which is lower than the 25% in the expenditures. In reflection of these calculations the investment would not

FVN = FV5= PV × (1 +I)N = $500 x (1 + 0.08)5 = $500 x (1.08)5 = $734.66

* Determine the value of the Nicholson File Company as a whole. For this we have calculated the NPV.

Note in the graph above that the X-axis intercepts are equal to the two projects' IRRs.

2. The current NPV is negative. One way to save money would be to reduce consulting costs. Please set the average consulting cost per month in cell b33 to $5000. At what discount rate is the NPV for the project 0?_____0.026____

Looking at this in terms of an internal rate of return – the one year return can be calculated as ($27.3/24) – 1=.1375 or 13.75% (this number has been rounded up to .14 or 14% in Exhibit 7). Note that whenever this IRR is above 12%, the sequel will be positive NPV.

Virtually all general managers face capital-budgeting decisions in the course of their careers. Among the most common of these is the either/or choice about a capital investment. The following describes some general guidelines to orient the decision-maker in these situations.

What is the NPV if the discount rate is 12.47 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

later in the project life. With a NPV of less than -$810,000, Scenario 6 is the project with the

Under the second case scenario, which the firm is in a tax-free environment, the NPV equals to -$834,638.76