a) Discounted cash flow analysis takes into account the time value of money. Theprojected cash flow for Project X has been assessed and is given in the following table afterallowance for taxation and depreciation (figures in parenthesis denote expenditure):Year012345678Project X(£200,000)£20,000£20,000£50,000£50,000£50,000£50,000£70,000£70,000Using a discount rate of 10%, determine the payback time, cumulative present value,discounted net present value of the cash flow and return on investment for Project X.Comment on the viability of the project and risk associated with the project.

Payback period will be the time taken for any project to recover its outflows. A payback period will…

Using a discount rate of 10 %, determine the payback time, cumulative present value, discounted net present value of the cash flow and return on investment for Project X. Comment on the viability of the project and risk associated with the project.

Using a discount rate of 10 %, determine the payback time, cumulative present value, discounted net present value of the cash flow and return on investment for Project X. Comment on the viability of the project and risk associated with the project.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

a) Discounted cash flow analysis takes into account the time value of money. The
projected cash flow for Project X has been assessed and is given in the following table after
allowance for taxation and depreciation (figures in parenthesis denote expenditure):
Year
0
1
2
3
4
5
6
7
8
Project X
(£200,000)
£20,000
£20,000
£50,000
£50,000
£50,000
£50,000
£70,000
£70,000
Using a discount rate of 10%, determine the payback time, cumulative present value,
discounted net present value of the cash flow and return on investment for Project X.
Comment on the viability of the project and risk associated with the project.

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