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Accounting Assignment | Net Present Value

   

Added on  2020-03-07

7 Pages1065 Words37 Views
Finance
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Running head: FINANCEFinanceName of the studentName of the universityAuthor note
Accounting Assignment | Net Present Value_1

1FINANCETable of Contents(a) Calculation............................................................................................................................2Calculation of payback period...............................................................................................2Calculation of accounting rate of return.................................................................................2Calculation of net present value.............................................................................................2(b)Key benefits and the limitations of various investment appraisal technique........................3Key benefits of using the investment techniques are as follows –.........................................3Limitations of investment appraisal technique......................................................................3(c) Sources of finance.................................................................................................................4Reference....................................................................................................................................6
Accounting Assignment | Net Present Value_2

2FINANCEPart C(a) CalculationCalculation of payback periodCalculation of paybackperiodPurchase cost/Annual cash inflow= £40,000,000/ £14,000,000= 2.86 yearsCalculation of accounting rate of returnCalculation of Accounting rate of returnAnnual depreciation £ 7,000,000.00 Average accounting Income £ 7,000,000.00 Accounting rate of return17.50%Calculation of net present valueCalculation of Net present valueCash inflow Year 1 £ 14,000,000.00 Year 2 £ 14,000,000.00 Year 3 £ 14,000,000.00 Year 4 £ 14,000,000.00 Year 5 £ 14,000,000.00 Net present value of cash inflow$57,402,764.10 Net present value$17,402,764.10 (The details calculations are shown in the excel file)The net present value of any project is the difference among the present value of cashinflows and present value of cash outflows. The NPV is utilized in the capital budgeting toanalyze the profitability of any projected investment or the project. It is also used to take thedecisions regarding whether any asset shall be purchased or not (Baum and Crosby 2014).
Accounting Assignment | Net Present Value_3

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