Financial Term Paper example
Undergraduate
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Finance & Accounting
Pages 10 (2510 words)
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Financial Management Name University Course Instructor’s Name Date of Submission Investment Appraisal Time 0 1 2 3 4 5 Sales ? 8,000,000 ?8,800,000 ?9,600,000 ?7,200,000 ?6,000,000 Variable costs ( ? 5,500,000) (?6,050,000) (?6,600,000) (?4,950,000) (?4,400,000) Contribution ?…

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900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Discount Factor @ 12% Cost of Capital 1.00 0.893 0.797 0.712 0.636 0.567 Present Value (?5,150,000) ?803,700 ?1,275,200 ?1,317,200 ?699,600 ?1,261,575 NPV ?207,275 NPV:-?5,150,000 + ?803,700 + ?1,275,200 + ?1,317,200 + ?699,600 + ?1,261,575 = ?207,275 The Net Present Value of a company is the value of a future number in terms of today. It basically helps in finding out a project’s is profitability. It requires finding out the present value of each future cash flow discounted at a specific value, which is the cost of capital of the project given in the form of a percentage. It uses the concept of discounted cash flows. Time Cash Flow (?5,150,000) ?900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Cash Flow (?5,150,000) ?900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Discount Factor @ 14% Cost of Capital 1.00 0.877 0.769 0.675 0.592 0.519 Present Value (?5,150,000) ?789,300 ?1,230,400 ?1,248,750 ?651,200 ?1,154,775 NPV (?75,575) NPV = -?5,150,000 + ?789,300 + ?1,230,400 + ?1,248,750 + ?651,200 + ?1,154,775 NPV = (?75,575) Payback Payback = 4,250,000 – 900,000 (Yr 1) – 1,600,000 (Yr 2) = 1750000 ? 1,850,000 (Yr 3) * 12 Payback = 2 Years and 11 months This is a technique used to measure the feasibility of projects in terms of the number of years that it takes to pay back an initial investment. ...
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