Homework Answers
rate positively ..
| Cash flow | Cumulative cash flow | Present value | |||||||||
| Year | Plant | Retail | Plant | Retail | PVIF @ 10% | Plant | Retail | ||||
| 0 | -2400000 | -2400000 | -2400000 | -2400000 | 1.0000 | (2,400,000.00) | (2,400,000.00) | ||||
| 1 | 420000 | 810000 | -1980000 | -1590000 | 0.9091 | 381,818.18 | 736,363.64 | ||||
| 2 | 540000 | 760000 | -1440000 | -830000 | 0.8264 | 446,280.99 | 628,099.17 | ||||
| 3 | 680000 | 680000 | -760000 | -150000 | 0.7513 | 510,894.06 | 510,894.06 | ||||
| 4 | 760000 | 540000 | 0 | 390000 | 0.6830 | 519,090.23 | 368,827.27 | ||||
| 5 | 810000 | 420000 | 810000 | 810000 | 0.6209 | 502,946.27 | 260,786.96 | ||||
| (38,970.26) | 104,971.10 | ||||||||||
| ans 1) | Payback period Plant = | 4.000 | Year | ||||||||
| Payback period retail = | 3.278 | Year | =3+150000/540000 | ||||||||
| ans 2) | NPV Plant= | (38,970.26) | |||||||||
| NPV Retail= | 104,971.10 | ||||||||||
| ans 3) | IRR Plant = | 9.43% | =IRR(B3:B8) | ||||||||
| IRR Retail= | 11.90% | =IRR(C3:C8) | |||||||||
| Ans 4) | Firm should choose project retail as it has lower payback period, higher NPV and higher IRR. Therefore project Retail should be selected. | ||||||||||
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