Business Decision Making

Business Decision Making

Contents
MAIN BODY..............................................................................................................................................3
Section A.................................................................................................................................................3
Section B.................................................................................................................................................5

MAIN BODY
Section A
Question 1.
(a) Apprise project by NPV:
Initial investment: £250,000
Calculation of net cash flow:
Year
Cash
inflow
(£)
Cash
outflow (£)
Net cash
flow (£)
2021 10000 60000 -50000
2022 55000 50000 5000
2023 85000 50000 35000
2024 105000 55000 50000
2025 160000 60000 100000
2026 210000 70000 140000
Net present value: discounted cash flow-initial investment
Year
Net cash
flow (£) PV factor
Discounted cash flow
(£)
2021 -50000 0.88 -44000
2022 5000 0.77 3850
2023 35000 0.67 23450
2024 50000 0.59 29500
2025 100000 0.52 52000
2026 140000 0.45 63000
Total of discounted cash flow
127800