Online Exam

ONLINE EXAM

Section A:
Question 1:
a)
Cash flows/Years 2020 2021 2022 2023 2024 2025 2026
Cash Inflows (£) -200,000 30,000 45,000 75,000 100,000 150,000 200,000
Cash outflows (£) 50,000 40,000 40,000 45,000 50,000 60,000
Net Profit -200,000 -20,000 5,000 35,000 55,000 100,000 140,000
Discounted@10
% 0.9090909 0.8264463 0.7513148 0.6830135 0.620921 0.5644739
Net Present
value -18,181.82 4,132.23 26,296.02 37,565.74 62,092.13 79,026.35
Cumulative Net
present value -200,000
-
218,181.82 -214,049.59 -187,753.57 -150,187.83 -88,095.70 -9,069.35
b)
The project has negative net present value; hence, it is not financially viable from company point
of view.
c)
For calculation of Net Present value a default discounting rate (10%) has been taken. The other
factors which could be taken into consideration is cost of capital which is 16% (exceeding 10%).
This shows it fails to cover even cost of capital of raising fund from market; therefore project
should be rejected.
Section B:
Question 3:
a)