99 Calclation of NPV Project E 100 NPV = Present value of cash inflow - Present value of cash outflow 101 Present Value of cash Outflow = Intial Investment $ 20,000.00 102 104 SRD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 103 Present Value of Cash Inflow Particulars 105 (a) Operating Income 106 (b) Depreciation of Asset($) (Note) 107 (c) Net Inflow (a) (b) 108 (d) Add: Salvage Value 109 (e) Add: Recovery of Working Capital 110 (6) Total Cash inflow (c) + (d) + (e) 111 (8) Present Value Factor @ 15 % 112 (h) Present Value (f) x (g) 113 114 Total Present value of cash inflow for First 10 Years 115 Present Value of Cash Inflow Beyond 10 Years 116 117 Total Present value of cash inflow 118 119 120 So NPV = 43429- 20000 121 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 0.87 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 4,350.00 SRD 3,780.00 SRD 3,290.00 SRD 2,860.00 SRD 2,485.00 SRD 1,728.00 SRD 1,504.00 SRD 1,308.00 SRD 1,136.00 SRD 988.00 SRD SRD 23,429.00 SRD 20,000.00 = 3000/15% SRD 43,429.00 SRD 23,429.00 Fixed cost Year Sales Variable Contribution Profit Costs SR SR SR SR SR 1 75,000 50,000 25,000 10,000 15,000 2 30,000 10,000 90,000 42,000 60,000 28,000 20,000 6,000 3 14,000 8,000 Fixed costs include an annual charge of SR 4,000 for depreciation; all the other fixed costs are avoidable. At the end of year 3 the working capital investment would be recovered and the equipment would be sold for SR 5,000. Project C would involve a current outlay of RM50,000 on equipment and SR 15,000 on working capital. The investment in working capital would be increased to SR 21,000 at the end of the first year. Annual cash profits would be SR 18,000 per annum for five years, at the end of which the investment in working capital would be recovered. Project D is a long-term project, involving an immediate outlay of SR 32,000 and annual cash profits of SR 4,500 per annum in perpetuity. Project E is another long-term project, involving an immediate outlay of SR 20,000 and annual cash profits as follows: (c) Calculate The Payback period for each project. (d) Determine which project should be undertaken by the company based on payback rule. Calciation of NPA BRRR TERROR RRRR un Calciation of NPV Project Presentator 2 Total So NPV - 6101564000 - SRD-2.995.00 Calciation of NPV Project So NPV = 20000-12000 - SRD 2,000.00 9 Calclation of NPV Project E 100 NPV Present value of cash inflow - Present value of cash outflow 101 Present Value of cash Outflow Intial Investment $ 20,000.00 102 103 Present Value of Cash Inflow 104 Particles Year 1 Year 2 Years Year 6 Year? Year Year Year 10 105 cal Operating income SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 106) Depreciation of Asset (S) (Note) 107 ) Net inflow SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 100 d Add Salvage Value Add Recovery of Working Capital 110 Total Cash flow de SRD 5,000.00 SRD 5.000.00 SRD 5,000.00 SRD 5,000.00 SRD 5.000.00 SRD 4,000,00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 111 Present Value Factor 15 087 0.756 0573 0497 0.432 0376 0327 0284 0247 112 h SRD 4,150.00 SRD 8,780.00 SRD 3,290.00 SRD 2.460.00 SRD 2.485.00 SRD 1,728.00 SRD 1,500.00 SRD 1,100.00 SRD 1,136.00 SRD . 113 Total Present value of cash inflow for First 10 years SRD 21429.00 115 Present Value of Cash inflow beyond 10 years 3000/15 SRD 20,000.00 116 117 Total Present value of cash inlow SRD 43,429.00 113 100 So NPV = 43429- 20000 SRD 23,429.00 99 Calclation of NPV Project E 100 NPV = Present value of cash inflow - Present value of cash outflow 101 Present Value of cash Outflow = Intial Investment $ 20,000.00 102 104 SRD Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 103 Present Value of Cash Inflow Particulars 105 (a) Operating Income 106 (b) Depreciation of Asset($) (Note) 107 (c) Net Inflow (a) (b) 108 (d) Add: Salvage Value 109 (e) Add: Recovery of Working Capital 110 (6) Total Cash inflow (c) + (d) + (e) 111 (8) Present Value Factor @ 15 % 112 (h) Present Value (f) x (g) 113 114 Total Present value of cash inflow for First 10 Years 115 Present Value of Cash Inflow Beyond 10 Years 116 117 Total Present value of cash inflow 118 119 120 So NPV = 43429- 20000 121 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 0.87 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 4,350.00 SRD 3,780.00 SRD 3,290.00 SRD 2,860.00 SRD 2,485.00 SRD 1,728.00 SRD 1,504.00 SRD 1,308.00 SRD 1,136.00 SRD 988.00 SRD SRD 23,429.00 SRD 20,000.00 = 3000/15% SRD 43,429.00 SRD 23,429.00 Fixed cost Year Sales Variable Contribution Profit Costs SR SR SR SR SR 1 75,000 50,000 25,000 10,000 15,000 2 30,000 10,000 90,000 42,000 60,000 28,000 20,000 6,000 3 14,000 8,000 Fixed costs include an annual charge of SR 4,000 for depreciation; all the other fixed costs are avoidable. At the end of year 3 the working capital investment would be recovered and the equipment would be sold for SR 5,000. Project C would involve a current outlay of RM50,000 on equipment and SR 15,000 on working capital. The investment in working capital would be increased to SR 21,000 at the end of the first year. Annual cash profits would be SR 18,000 per annum for five years, at the end of which the investment in working capital would be recovered. Project D is a long-term project, involving an immediate outlay of SR 32,000 and annual cash profits of SR 4,500 per annum in perpetuity. Project E is another long-term project, involving an immediate outlay of SR 20,000 and annual cash profits as follows: (c) Calculate The Payback period for each project. (d) Determine which project should be undertaken by the company based on payback rule. Calciation of NPA BRRR TERROR RRRR un Calciation of NPV Project Presentator 2 Total So NPV - 6101564000 - SRD-2.995.00 Calciation of NPV Project So NPV = 20000-12000 - SRD 2,000.00 9 Calclation of NPV Project E 100 NPV Present value of cash inflow - Present value of cash outflow 101 Present Value of cash Outflow Intial Investment $ 20,000.00 102 103 Present Value of Cash Inflow 104 Particles Year 1 Year 2 Years Year 6 Year? Year Year Year 10 105 cal Operating income SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 106) Depreciation of Asset (S) (Note) 107 ) Net inflow SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 5,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 100 d Add Salvage Value Add Recovery of Working Capital 110 Total Cash flow de SRD 5,000.00 SRD 5.000.00 SRD 5,000.00 SRD 5,000.00 SRD 5.000.00 SRD 4,000,00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 SRD 4,000.00 111 Present Value Factor 15 087 0.756 0573 0497 0.432 0376 0327 0284 0247 112 h SRD 4,150.00 SRD 8,780.00 SRD 3,290.00 SRD 2.460.00 SRD 2.485.00 SRD 1,728.00 SRD 1,500.00 SRD 1,100.00 SRD 1,136.00 SRD . 113 Total Present value of cash inflow for First 10 years SRD 21429.00 115 Present Value of Cash inflow beyond 10 years 3000/15 SRD 20,000.00 116 117 Total Present value of cash inlow SRD 43,429.00 113 100 So NPV = 43429- 20000 SRD 23,429.00