* MGT 201 1ST Assignment solution*
Presented by :
Payback period:
| Years | Cash flow | Cumulative cash flow |
| 0 | (500,000) | (500,000) |
| 1 | (800,000) | (1300,000) |
| 2 | 150,000 | (1150,000) |
| 3 | 200,000 | (950,000) |
| 4 | 250,000 | (700,000) |
| 5 | 300,000 | (400,000) |
| 6 | 300,000 | (100,000) |
| 7 | 300,000 | 200,000 |
| 8 | 300,000 | 500,000 |
| 9 | 300,000 | 800,000 |
| 10 | 300,000 | 1100,000 |
Payback period: = 6 + (100,000/300,000)
= 6 +0.333
Payback period = 6.33 years
Net present value:
| Year | Cash flow | Present value discount factor (14%) | Present value |
| 0 | (500,000) | 1.00 | ( 500,000) |
| 1 | (800,000) | 0.877 | (701600) |
| 2 | 150,000 | 0.769 | 115,350 |
| 3 | 200,000 | 0.675 | 135,000 |
| 4 | 250,000 | 0.592 | 148,000 |
| 5-10 | 300,000 | 2.304 | 691,200 |
| Net present value | (112,050) |
Because the net present value is negative the project is unacceptable.
| Year | Cash flow | Discount factor (12%) | Present value | Discount factor (11%) | Present value |
| 0 | (500,000) | 1.00 | (500,000) | 1.00 | (500,000) |
| 1 | (800,000) | 0.893 | (714,400) | 0.901 | ( 720,800) |
| 2 | 150,000 | 0.797 | 119,550 | 0.812 | 121,800 |
| 3 | 200,000 | 0.712 | 142,400 | 0.731 | 146,200 |
| 4 | 250,000 | 0.636 | 159,000 | 0.659 | 164,750 |
| 5-10 | 300,000 | 2.613 | 783,900 | 2.787 | 836,100 |
| ( 9,550) | 48,050 |
=0.01 [ X [0.11 48050, IRR O, 0.12 (9550)]48050]57600
= X/0.01=48050/57600
X = (0.01)*(48050)/57600
=0.00834
X = 0.00834
= X + 0.11
=O.OO834+0.11
IRR =0.11834 OR 11.834%
Because the internal rate of return is less than the required rate of return the project would not be acceptable.
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