B203B Business Functions | Capital Budgeting
Added on 2020-03-04
16 Pages2018 Words98 Views
Finance
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Capital Budgeting
Solution 1:TOYEE BusinessStatement of Cash FlowsYearParticularsCash OutflowCash Inflows0Machine Cost-400001PB Depreciation85002PB Depreciation117003PB Depreciation159504PB Depreciation164005PB Depreciation152005Salvage Value8500Rate of Return5.00%Accounting Rate of ReturnAnnual Depreciation(40000-8500)/5 $6,300.00 YearCash InflowSalvage ValueDepreciationAccounting Income1 $ 8,500.00 $ 6,300.00 $ 2,200.00 2 $ 11,700.00 $ 6,300.00 $ 5,400.00 3 $ 15,950.00 $ 6,300.00 $ 9,650.00 4 $ 16,400.00 $ 6,300.00 $ 10,100.00 5 $ 15,200.00 $ 8,500.00 $ 6,300.00 $ 17,400.00 Total $ 44,750.00 Average Accounting income $ 8,950.00 Average ARRAverage Accounting Income/initialInvestment22.38%Payback MethodInitial Investment40000Statement of Cumulative Cash FlowsYearCash InflowCumulative CF1 $8,500.00 $ 8,500.00
2 $11,700.00 $ 20,200.00 3 $15,950.00 $ 36,150.00 4 $16,400.00 $ 52,550.00 5 $15,200.00 $ 67,750.00 Payback years3years + {(40000-36150)/(52550-36150)}3.23years3 years 3 months approxNet Present ValueStatement of Cash FlowsYearParticularsCash OutflowCash Inflows0Machine Cost-400001PB Depreciation85002PB Depreciation117003PB Depreciation159504PB Depreciation164005PB Depreciation152005Salvage Value8500Rate of Return5%Statement for calculation of present Value of Cash inflowsYearCash InflowPVF @ 5%PV1 $8,500.00 0.952 $8,095.24 2 $11,700.00 0.907 $10,612.24 3 $15,950.00 0.864 $13,778.21 4 $16,400.00 0.823 $13,492.32 5 $15,200.00 0.784 $11,909.60 5 $8,500.00 0.784 $6,659.97 Total PV $64,547.58
NPVPV of cash inflow -PV ofcash outflows $ 24,547.58 Internal Rate of ReturnLower Discount Rate 10%Higher Discount Rate30%Statement for calculation of present Value of Cash inflows (Lower Discount Rate)YearCash InflowPVF @ 10%PV1 $8,500.00 0.909 $7,727.27 2 $11,700.00 0.826 $9,669.42 3 $15,950.00 0.751 $11,983.47 4 $16,400.00 0.683 $11,201.42 5 $15,200.00 0.621 $9,438.00 5 $8,500.00 0.621 $5,277.83 Total PV $55,297.42 NPV1 $15,297.42 Statement for calculation of present Value of Cash inflows (Lower Discount Rate)YearCash InflowPVF @ 30%PV1 $8,500.00 0.769 $6,538.46 2 $11,700.00 0.592 $6,923.08 3 $15,950.00 0.455 $7,259.90 4 $16,400.00 0.350 $5,742.10 5 $15,200.00 0.269 $4,093.80 5 $8,500.00 0.269 $2,289.30 Total PV $32,846.63
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