Capital Investment Appraisal Assignment
12 Pages1693 Words204 Views
Added on 2020-05-16
Capital Investment Appraisal Assignment
Added on 2020-05-16
ShareRelated Documents
Running Head: Capital Investment AppraisalCapital Budgeting
Capital Investment Appraisal1Question 1Part 1)Initial investment $ 2.40Loan amount $ 1.20Loan rate5.70%Loan instalment $ 0.28Loan amortisation table:YearOpeningInstalmentInterestPrincipleClosing1 $ 1.20 $ 0.28 $ 0.07 $ 0.21 $ 0.99 2 $ 0.99 $ 0.28 $ 0.02 $ 0.27 $ 0.72 3 $ 0.72 $ 0.28 $ 0.02 $ 0.27 $ 0.45 4 $ 0.45 $ 0.28 $ 0.02 $ 0.27 $ 0.19 5 $ 0.19 $ 0.28 $ 0.10 $ 0.19 $ - Total cost of new equipment $ 2.40 Rate of depreciation40%DepreciationYearOpening BalanceDepreciationClosing Balance1 $ 2.40 $ 0.96 $ 1.442 $ 1.44 $ 0.58 $ 0.863 $ 0.86 $ 0.35 $ 0.524 $ 0.52 $ 0.21 $ 0.315 $ 0.31 $ 0.12 $ 0.19Net present valueYearCash flows before loan paymentPrincipleInterestNet Cash FlowsPVF@ 12.5%Present Value
Capital Investment Appraisal20 $ -2.40 $ -2.40 1.000 $ -2.40 1 $ 1.04 $ 0.21 $ 0.07 $ 0.76 0.889 $ 0.67 2 $ 0.60 $ 0.27 $ 0.02 $ 0.32 0.790 $ 0.25 3 $ 0.97 $ 0.27 $ 0.02 $ 0.68 0.702 $ 0.48 4 $ 0.55 $ 0.27 $ 0.02 $ 0.27 0.624 $ 0.17 5 $ 0.70 $ 0.19 $ 0.10 $ 0.42 0.555 $ 0.23 5 $ 0.24 $ - $ - $ 0.24 0.555 $ 0.13 NPV $ -0.46 Net present value =$ -0.456 millionsPart 2)Internal rate of returnIRRYearCash flows0 $ -2.40 1 $ 1.04 2 $ 0.60 3 $ 0.97 4 $ 0.55 5 $ 0.70 5 $ 0.24 IRR21.34%Internal rate of return= 21.34%Part 3)Payback period (years)YearCash flowsCumulative Cash Flows0 $ -2.40 $ -2.40 1 $ 1.04 $ -1.36 2 $ 0.60 $ -0.76 3 $ 0.97 $ 0.21 4 $ 0.55 $ 0.76
Capital Investment Appraisal35 $ 0.70 $ 1.46 5 $ 0.24 $ 1.70 2.79The Payback period of the company is 2.79 yearsPart 4)Accounting rate of returnARRAverage Net ProfitAverage InvestmentYearCash flowsDepreciationInterest1 $ 1.04 $ 0.96 $ 0.07 $ 0.01 2 $ 0.60 $ 0.58 $ 0.02 $ 0.01 3 $ 0.97 $ 0.35 $ 0.02 $ 0.60 4 $ 0.55 $ 0.21 $ 0.02 $ 0.33 5 $ 0.70 $ 0.12 $ 0.10 $ 0.48 Net profits $ 1.43 Average Net Profit $ 0.29 Average Investment0.240+ 0.5(2.4-0.240) $ 1.32 ARR 22%Part 5)Profitability Index Profitability Index Total present value of cash flowsInitial investment$ 1.94 $ 2.40 = 0.81
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
Managerial Finance: NPV, IRR, Payback Period, ARR, Profitability Index and Sensitivity Analysislg...
|12
|2128
|142
Derivatives: Statistics and Analysislg...
|26
|4972
|402
Capital Investment Decisionslg...
|20
|3256
|300
A study on Capital structure and Capital investmentlg...
|15
|2437
|31