Question

A project where the projected costs and benefits are spread over five years with the following data:

• Estimated costs are $100,000 in Year 1 and $25,000 each for years 2, 3, 4, and 5.

• Estimated benefits are $0 in Year 1 and $80,000 each for years 2, 3, 4, and 5.

• Use a discount rate of 8%

1.Calculate the following:

a. Calculate cash flow

b. Show the discount factor

c. Show discounted costs and discounted benefits

d. Calculate and clearly display the NPV (Net Present Value), ROI (Return on Investment), and year in which payback (break-even point) occurs.

Answer 1

Solution Details :- Estimated costs : Yeart $ 100,000 2 to 5 $25,000 Estimated benefits : year I $0. Year 2 to 5 $80,000 Discoont siate - 89. (1) calculate cash flow Benefits Yeart (Revenue) costs Net Cashflow $100,000 ($100,000) 2 $80,000 $ 25,000 $ 55,000 $80,000 $ 80,000 $80,000 $ 25000 $25000 $25000 $55,00 $ 55,000 $ 55,000 5 1 in dix count factor - 8% I (ii) Dilcounted costs and Year Benefits costs to $100,000 discounted benefits DiCE h emeleten 0.9259 $0 Discounted Colls $92,590 $ 80,000 $25,500 0.8573 $ 68,584 $ 21432.5 $80,000 $ 80,000 $80,000 $25,000 $2.5000 $2.500d 0.7938 0.7350 0.6806 $63,504 $58,800 $ 54,448 $19845 $18375 $17015

(d) (i) Net present value D.CF Year Nefauh flow ($100,000) ( $55,000 Discounted Cach flow (92590) 471515 2. 0.9259 0.8573 0.7938 .3 4 43659 $55,000 $ 55,800 0.7350 40,425 5 $ 55,000 0.6806 37,433 $ 76,078.50 upy - (1) Return on Investment Return (wet couh flow) EN ROI Cart - (11) = $120,000 X100. - 0-60 $200,000 pay back paied pay back period a gyears + 45,000 55,000 - Bank - 18.82 years