Ways of Computing the Value of Alternative Projects Essay example

NPV = 10,600,000 / (1 + 0.09)5 + 12,300,000 / (1 + 0.09)6 + 14,100,000 / (1 + 0.09)7 + 15,800,000 / (1 + 0.09)8 + 18,200,000 / (1 + 0.09)9 - 40,000,000 = $-1,754,183.53

2. Net Present Value – Secondly, Peter needs to investigate the Net Present Value (NPV) of each project scenario, i.e. job type, gross margin, and # new diamonds drills purchased. The NPV will measure the variance of the present value of cash outflow (drilling equipment investment) versus the future value of cash inflows (future profits), at the benchmark hurdle rate of 20%. A positive NPV associated with the investment means that the investment should be undertaken as it exceeds the minimum rate of return. A higher NPV determines which project scenario will have the highest return on cash flow, hence determining the most profitable investment in terms of present money value.

6. Virginia should invest in selling smoked hams on the internet. The present value of the future cash flows is $3,207,547.17 and the required investment is less ($2,500,000). The investment would yield a positive NPV of $707,547.17, so the project would be worth investing in. Since Virginia does not want to use internal cash to finance the investment, she would have to sell more shares of

32) Compute the NPV for the following project. The initial cost is $5,000. The net cash flows are $1,900 for four years. The net salvage value is $1,000 when the project terminates. The cost of capital is 10%.

An investment project should be accepted only if the NPV is equal to the initial cash flow.

Net present value (NPV) is the present value (PV) of an investment’s future cash flows minus the initial investment (“Net Present Value,” 2011).   The high-tech alternative has a PV of $13,940,554.49 with an initial investment of $7,000,000, so the NPV = $6,940,554.49.   This positive NPV indicates to

Yes. This project should be accepted because the NPV ≥ 0. and the IRR ≥ required rate of return.

Answer: The sunk cost includes equipment cost will change to $180,000, in this situation, despite the business develops successful, it also has no profit, so I am less likely to invest.

It follows that the NPV at t=0 can be found by discounting the above number three years at 12% -- doing so you get a value of $0.2669 million – which is an estimate of what you pay for the sequel right at t=0.

Due to the NPV being a positive number listed in the above calculations it is my belief and will be the advantage of the company in question to go ahead with the project and expect a great return for their efforts. Cash flow is one of the most important facets of an organization. Net present value also known as (NPV) can be calculated before or after taxes ( CCIM Institute, 2007).

Net Present Value (NPV) calculates the sum of discounted future cash flows and subtracting that amount with the initial investment of the project. If the NPV of a project results in a positive number, the project should be undertaken. It is the most widely used method of capital budgeting. While discount rate used in NPV is typically the organization’s WACC, higher risk projects would not be factored in into the calculation. In this case, higher discount rate should be used. An example of this is when the project to be undertaken happens to be an international project where the country risk is high. Therefore, NPV is usually used to determine if a project will add value to the company. Another disadvantage of NPV method is that it is fairly complex compared to the other methods discussed earlier.

There are several traditional methods that can be used in appraising investment decisions. For instance, the net present value method (NPV) which entails estimating the costs and revenues of a project and discounting these figures to get their present values. Projects with the biggest positive net present value are the ones chosen as they represent the best stream of benefits of investing in the project over and above recovering the cost of initiating the projects. The discount rate is another method which is similar to the net present value method but reflects more on the time preference. This approach may focus on the opportunity cost of

Scenario 1 which resembles the steady state has a nominal cash flow of 2.5 million. The NPV of scenario 1 is 118,245.21 with an IRR of 8.59%. In scenario 2 the expected cash flow is (2,500,000*1.3) with an NPV of 2,202,737.72 and IRR 16.44%. Scenario 3 has an expected cash flow of (2,500,000*0.85) with an NPV of -960,507.80 and IRR of 4.25%. Taking the three scenarios into account, an expected value of NPV that incorporates the probabilities of each scenario needs to be considered.

This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.

NPV is a popular method to evaluate the investment decision of a new project. Most of the managers are most likely to use NPV for investment decisions. Whether, company invests in new project or improving the existing business process to achieve financial objectives of an organisation. Such as Randolph Mining Company have an extensive experience in mining industry. Still it is not easy to make a quick decision to built up the site or selling the right to the competitors with immediate benefit. In this situation, various analysis tools are more appropriate to better judgement of project. However, NPV is one of the most appropriate tool to predict possible future cash inflows from the project. It provides the time value of money components within the estimated project period. Therefore, director’s can easily make a decision based on positive cash generation from the desired project period.