Question
They are currently dealing with a Tech Company, to provide all their appliances for over the next 5 years. Although Business X is operating at
They are currently dealing with a Tech Company, to provide all their appliances for over the next 5 years. Although Business X is operating at full capacity, in order to complete the dealings with the tech company, they would need to expand. As a result, they have planned to move into a new warehouse premise to expand their operations.
There is a 5-year lease on the premises, with an initial investment of $2 million for renovation purposes and an additional $8 million for appliances. The entire total investment of $10 million is expected to have a useful life of 5 years and a residual value of $2 million. Any depreciation should be calculated on a straight-line basis.
Business X's future cash inflows and outflows over the following 5 years are attached below:
The cost of capital for Business X is 7%
What is the:
- 1) Discounted payback
- 2) Annual Percentage Rate
- 3) Net Present Value
Yr 1 12 2 3 4 45 5 Inflow 3,000,000 5,000,000 8,000,000 7,000,000 3,000,000 Outflow -2,000,000 -3,000,000 -2,000,000 -2,000,000 -1,000,000
Step by Step Solution
5.00 Ratings (1 Votes)
There are 3 Steps involved in it
Step: 1
1 To calculate the discounted payback period we need to find the point in time when the cumulative discounted cash inflows equal the initial investment of 10 million Using a spreadsheet or calculator ...Get Instant Access with AI-Powered Solutions
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Step: 2
Step: 3
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