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Finance and Accounting : 3 questions (calculations) - Term Paper Example

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Author : dreichert


QUESTION 1 a). Net Present Value is the discounted net value of a project within specified period of time. Net present value is present cash inflows less present cash out flows. Positive net present value promises increase in value, which indicates greater return than those of rate of return and should be accepted…

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Finance and Accounting : 3 questions (calculations)

0 ? 8,000,000 ?8,800,000 ?9,600,000 ?7,200,000 ?6,000,000 Variable costs ?0 ? 5,500,000 ?6,050,000 ?6,600,000 ?4,950,000 ?4,400,000 Contribution ?0 ?2,500,000 ?2,750,000 ?3,000,000 ?2,250,000 ?1,600,000 Additional Fixed costs ?0 ?1,150,000 ?1,150,000 ?1,150,000 ?1,150,000 ?1,150,000 Annual net cash flow ?0 ?1,350,000 ?1,600,000 ?1,850,000 ?1,100,000 ?450,000 The total working capital to be reclaimed at the end of the period =?1,350,000 (?900,000 + ?450,000) The salvage value = ?425,000 (10% ? ?425,000,000). Total variable per unit (Materials and Labour) = ?55 (?30+?25). Year t Cash inflows Cash outflows Net cash flow (1+r)^-t Net present value Initial Investment (Plant and machinery + working capital 2012 0 0 -?5,150,000 -?5,150,000 1 -?5,150,000 Annual net cash flow and Working capital 2013 1 ?1,350,000 -?450,000 ?900,000 0.892857143 ?803,571 Annual net cash flow 2014 2 1,600,000 ?0 ?1,600,000 0.797193878 ?1,275,510 Annual net cash flow 2015 3 1,850,000 ?0 ?1,850,000 0.711780248 ?1,316,793 Annual net cash flow 2016 4 1,100,000 ? 0 ?1,100,000 0.635518078 ?699,070 Working capital + salvage value + Annual net inflow 2017 5 ?2,225,000 ?0 ?2,225,000 0.567426856 ?1,262,525 Net Present value ?207,470 Payback refers to a period when the business is supposed to recoup its initial investment from the cash it generates. ...
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