Corporate Accounting

This document discusses the computation of net present value for a project in corporate accounting. It explores different options and evaluates the best investment based on the net present value. The document also includes references for further reading.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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1CORPORATE ACCOUNTING
Table of Contents
Question 1........................................................................................................................................2
References........................................................................................................................................4

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Question 1
The net present value for the project will be computed on a wide variety of option basis
the computation of the final value can be derived with the help of the cash inflows and cash
outflows from the project. The discount rate taken for the purpose of discounting the value of the
project was around 12% and the tax rate taken into consideration for the
a) The three projects that were identified for computation of the best possible sources
reflecting the utilisation of the asset (land) can be well reflected with the help of the given
cash flows. In the case of project 1 the land can be let on a lease basis to third party who
will be paying a rental fee for a sum of five years. The salvage value or the end value of
the property at the end of five year will be taken as 6 million. The base year lease charges
will be 1.5 million and the same is expected to grow by around 10% on a yearly basis.
The tax rate taken into consideration for the evaluation of net cash flows will be
discounted for the computation of the net present value of the project. In the second case,
the project will be given on a lent basis and the growth in the lease value will be around
15% on a yearly basis. The salvage value for the project will be around 6.5 million. In the
third project, the project would be sold for a sum of 7.5 million (Fleten et al. 2016).
b) The initial investment for the project would be taken around 6.5 million, which will be
taken as the initial investment and is the fair value for the land.
c) After estimating the net income and expenses of the company, the net present value for
the project was determined for the project 1 to be around $298,102. The NPV for the
project 2 to be around $177,267 and the return from the project 3 would be around
$140,000 (Leyman & Vanhoucke 2016).

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d) The project 1 would be considered as the best possible source of investment for the
company where the NPV for the project would be around $298,102. Project 2 can also be
considered as the best second option where the asset can be used for the purpose of
leasing with different lease growth rate in this scenario (Zore et al. 2018).
e) The project that would be selected for the purpose of investment will be project 1 and the
same will be considered for the purpose of investment. The discount rate was around
12% for the project and with the same the project net profitability was around $298,102.

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References
Fleten, S. E., Linnerud, K., Molnár, P., & Nygaard, M. T. (2016). Green electricity investment
timing in practice: Real options or net present value?. Energy, 116, 498-506.
Leyman, P., & Vanhoucke, M. (2016). Payment models and net present value optimization for
resource-constrained project scheduling. Computers & Industrial Engineering, 91, 139-153.
Zore, Ž., Čuček, L., Širovnik, D., Pintarič, Z. N., & Kravanja, Z. (2018). Maximizing the
sustainability net present value of renewable energy supply networks. Chemical Engineering
Research and Design, 131, 245-265.