Calculate the Payback period (PBP) and Profitability Index (PI) of the investment and state the Pro’s and Cons of this method The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567
Calculate the Payback period (PBP) and Profitability Index (PI) of the investment and state the Pro’s and Cons of this method
The annual incremental
|
Years |
CF’s (000) |
|
Year 0 |
-175,000 |
|
Year 1 |
K11,000 |
|
Year 2 |
K3,000 |
|
Year 3 |
K34,000 |
|
Year 4 |
K47,000 |
|
Year 5 |
K8,000 |
Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The
|
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
D.f |
1.00 |
0.893 |
0.797 |
0.712 |
0.636 |
0.567 |
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