Discount rate 8% Assume the project is completed in Year 0 Year 3 Total 140,000 40,000 40,000 40,000 0.79 1 2 Costs Discount factor Discounted costs 1 0.93 0.86 140,000 37,200 34,400 31,600 243,200 0 200,000 200,000 200,000 0.86 0 186,000 172,000 158,000 516,000| Benefits Discount factor 1 0.93 0.79 Discounted benefits Discounted benefits - costs (140,000) 148,800 137,600 126,400 272,800 NPV Cumulative benefits - costs (140,000) 8,800 146,400 272,800 ROI 112% Payback In Year 1 © Cengage Learning 2016 FIGURE 4-5 JWD Consulting net present value and return on investment example
Discount rate 8% Assume the project is completed in Year 0 Year 3 Total 140,000 40,000 40,000 40,000 0.79 1 2 Costs Discount factor Discounted costs 1 0.93 0.86 140,000 37,200 34,400 31,600 243,200 0 200,000 200,000 200,000 0.86 0 186,000 172,000 158,000 516,000| Benefits Discount factor 1 0.93 0.79 Discounted benefits Discounted benefits - costs (140,000) 148,800 137,600 126,400 272,800 NPV Cumulative benefits - costs (140,000) 8,800 146,400 272,800 ROI 112% Payback In Year 1 © Cengage Learning 2016 FIGURE 4-5 JWD Consulting net present value and return on investment example
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Perform a financial analysis for a project using the format provided in Figure 4-5. Assume that the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $100,000 each year in Years 2, 3, and 4. Use a 9 percent discount rate, and round the discount factors to two decimal places. Create a spreadsheet or use the business case financials template on the companion website to calculate and clearly display the
your financial analysis.
Transcribed Image Text:Discount rate
8%
Assume the project is completed in Year 0
Year
3 Total
140,000 40,000 40,000 40,000
0.79
1
2
Costs
Discount factor
Discounted costs
1
0.93
0.86
140,000 37,200 34,400 31,600 243,200
0 200,000 200,000 200,000
0.86
0 186,000 172,000 158,000 516,000|
Benefits
Discount factor
1
0.93
0.79
Discounted benefits
Discounted benefits - costs (140,000) 148,800 137,600 126,400 272,800 NPV
Cumulative benefits - costs (140,000) 8,800 146,400 272,800
ROI
112%
Payback In Year 1
© Cengage Learning 2016
FIGURE 4-5 JWD Consulting net present value and return on investment example
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