The Initial Outlay and Internal Rate of Return of a Geography Name Professor Course Institution Date Exercises 1

Geography
Name
Professor
Course
Institution
Date

Exercises
1. The firm has initial outlay of $ 20,000.The inflows expected is $ 5,000 per year in 5 years. The
income tax rate is 40%.The capital is 12 percent
a. The IRR and NPV
The net present value and the internal rate of return help the company to evaluate whether a
project or an investment is worth enough.
The NPV
The net present value refers to a potential change in investor’s wealth that is normally caused by
an investment or project while the time value of money is accounted for.
The NPV formulae are;
NPV=R* [(1-(1+i)-n] / i - initial investment
Description of the terms
R =is the cash inflow received at each period
i =is the rate of return anticipated by the investment
n =the number of periods during which the investment is anticipating
Solution
Initial investment =$20,000
Tax=40%

R = $5,000
i= 12%
n=5 years
Cash inflow R
($)
Time in
years
The NPV rate 1/(1+i)n Present value ($)
R*1/(1+i)n
After tax ($)
(40%)
20,000 0 1/(1+0.12)0=1.000 -20,000 -
5,000 1 1/(1+0.12)1=0.8928 =4,464 =1,785
5,000 2 1/(1+0.12)2=0.7972 =3,985 =1,594
5,000 3 1/(1+0.12)3=o.7118 =3,559 =1,424
5,000 4 1/(1+0.12)4=0.6355 =3,178 =1,271
5,000 5 1/(1+0.12)5=0.5674 =2,837 =1,135
Total =18,023 Total =7,209
Therefore, the NPV is;
The total cash inflows is = $ 18,023.
The total cash inflow after tax is =$ 18,023-$7,209
= $ 10,814
Therefore the NPV =Total cash inflow –the initial investment
=$10,814-$ 20,000
= $ -9,186

The IRR
Internal rate of return is interest at which the total net present value of the project or investment
is equal to zero (Schläfke, Silvi & Möller, 2012). Therefore, it shows that IRR is used in
evaluation of investment or a project. For example, if a certain IRR of the project exceeds the
anticipated rate of return then that investment is known to be desirable thus the best. Also, when
the IRR is not reaching the planned IRR rate then project is totally rejected.
Generally, IRR assists
Solution
The IRR formula;
0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n
The P0, P1,,,,,,,, Pn are the expected inflows in respective periods and 1,2,n are IRR equals
expected by the project.
In the question;
Initial investment =$20,000
Tax=40%
R = $5,000
i= 12%
n=5 years

0 = -$20,000 + ($5,000)/(1+0.8928 ) + ($5,000)/(1+0.7972)2 + ($5,000)/(1+ o.7118)3+
$5,000/(1+0.6355)4 +($5,000)/(1+ 0.5674)5
0=-$20,000 + 9464r + 8986r + 8559r + 8178r + 7837r
=0.4649%
b. Whether the firm should accept or reject the project
The firm should not accept the investment. The net present received is negative and therefore the
investment will generate profits. Also, the IRR of the investment is negative meaning that it less
than the anticipated IRR of the investment.
3. Company planning to invest $ 75,000 and returns expected as shown
Years 1-10; $ 7,500 per year
Years 11-20; $22,500 per year
The estimated cost is 15% and marginal tax is 40%
Solution
Cash
inflows
R ($)
Tim
e in
year
s
The NPV rate
1/(1+ i)n
I=0.15%
Present value
($)
R*1/(1+0.15)n
tax ($)
( 40%)
$ 7,500 1 1/(1+i)1 8625 3450
$ 7,500 2 1/(1+i)2 5671 2268

$ 7,500 3 1/(1+i)3 4931 1972
$ 7,500 4 1/(1+i)4 4288 1715
$ 7,500 5 1/(1+i)5 4255 1702
$ 7,500 6 1/(1+i)6 3242 1297
$ 7,500 7 1/(1+i)7 2819 1128
$ 7,500 8 1/(1+i)8 2451 980
$ 7,500 9 1/(1+i)9 2132 853
$ 7,500 10 1/(1+i)10 1854 742
$22,500 11 1/(1+i)11 4836 1734
$22,500 12 1/(1+i)12 4205 1682
$22,500 13 1/(1+i)13 3656 1462
$22,500 14 1/(1+i)14 3180 1272
$22,500 15 1/(1+i)15 2765 1106
$22,500 16 1/(1+i)16 2404 961
$22,500 17 1/(1+i)17 2090 836
$22,500 18 1/(1+i)18 1818 727
$22,500 19 1/(1+i)19 1580 632
$22,500 20 1/(1+i)20 1373 549
Total=68,175 Total tax=27,068
Based on NPV should the firm accept to undertake training program?
The initial investment =$ 75,000.

NPV =total cash inflows –the initial investment
=$ 68,175 -$27,068
=$41,107
Therefore;
=$41,107-$75,000
=-$33,893.
Based on NPV should the firm accept to undertake training program?
The firm should not undertake the investment. It should be rejected meaning that has no profit
since the total NPV is negative.
Case exercises
Industrial development tax relief and incentives.
1. The likely benefits of the project.
The obvious implications of the project or investment are revealed by the amount of cash inflows
that is anticipated. The benefits of the investment is that the targeted income raises the idea that a
future dollor with be more or less that the today’s dollar. The cash flows in the project are
discounted to another period with the capital cost (Schläfke et al., 2012).
The results revealed by the project determine whether the investment will incur profits or loss.
The NPV of the investment reveals that the project will raise adequate profits. The positive NPV
is indication of project will have cash flows

The investment has taken into consideration the inherent risk associated with project and also the
cost of capital (Tong,Kumar & Huang,2011). Therefore, it shows that the projection of the next 5
coming years will be inherently less to than the cash flows generated next year. The NPV shows
how the investment will adjust to risk (Schläfke et al.,2012). Also, NPV summarizes by
indicating that long term investments have no values than the short term investment.
2. Requisite components of the form of report to be taken.
The report to industrial development tax relief and incentives may take the normal standard
format of the report. The standard report format is supported by a number of sections which acts
as the major components.
Requisite components.
The report title that includes the name and data of preparation.
The summary of the major events, the conclusions and also the recommendations needed. It has
to be short and should bring the overview of report.
The introduction which explains the problem and reason for the report.
The body of the report which reveals the main sections.
Conclusions which conclude everything discussed in the report.
The recommendations which describes what to be done.
The appendices which contains the technical details used when designing the report.
Discussion questions

1. Which Aspects of global warming are scientifically well established and which are not?
The global warming controversy existing revolves around the impacts of humankind on global
climate and also about the required policies that ought to be enacted in order to minimize
possible effects of climatic change
The current aspect of climate change is that the current global warming shows a long term trend
that it is always caused by humans (Angrave et al., 2016). Also, serious damage might be the
outcome in the future if correct measures are not undertaken.
A scientist knows the aspect that various gases released into the atmosphere such as Co2usually
trap heat and also act as a blanket leading to warming of the entire planet. This co2 is generated
from fossil fuels e.g. coal, oil burnt to generated electricity and power to households.
Some of the other aspects that have caused scientists to research are the ice cores drawn from
tropical mountains glaciers which indicate that the global climate highly responds to changes in
the existing greenhouse gas levels. Evidence of this situation can be seen in tree wings, coral
reefs, and sediments in the ocean levels. It shows that current warming is occurring at a very
faster rate.
Global temperature rise
The aspects indicate that the earth average surface temperature levels have risen highly over the
past few years. This is due to the increased carbon dioxide and other emissions in the
surrounding hence the need for scientists to do research that is well established
The information aspects regarding global warming are well established. Various earth –orbiting
satellites and also several technological advancements have made it possible for a scientist to

acquire the bigger picture (Baesens et al., 2016). They have been able to collect a given number
of distinct data set about the universe and its climate on a typical global scale. This type of
information obtained show deep details of a constantly changing climate. As a result of the well-
established data, it is quite evident that it increased levels of greenhouse gases cause the earth
warmth to increase
Shrinking ice sheets as a result of global warming
The existing Greenland ice sheets have immensely reduced over the years.
The global warming aspects that are not quite well established include;
 Ocean acidification
 A decline in the Arctic sea ice
 A rise in sea level
There have also existed various political discussions and utterances regarding global warming.
Some other aspects that are not well established is the social media information that is often
misguided and not well established,
2. Why has Coal dominated as a fuel source for electricity generation over the decades?
Coal is generally the cheapest source of energy and electricity production. Evidently, it is much
cheaper than the use of nuclear, natural and gas fuel sources. In as much as hydro sources are
cheaper it has some challenges. This includes the problem that river sources are usually frozen
during the summer season when high peak heating is required for households use.
Coal also issues a stable source of fuel energy for the generation of electricity. There is no
sudden shortage as experienced by the use of natural gas (Bradlow et al., 2017). Various

countries in the world d have a continuous supply of coal hence making it a dominating source of
fuel over the decades.
Coal is important as it creates more stable jobs as compared to their sources such as natural,
nuclear and gas. Employment is created when people remove coal from the earth atmosphere,
transporting it, burning it produces electricity and also later disposing of the coal ash.
The reasonable utilization of coal enhances nations to acquire the time frame required to have
viable alternative energy sources such as the use of solar technology without much affecting the
state's economic level.
Coal gives 56% of the power utilized in the country every day. It gives 95% of Kentucky's
power. Electrical rates in Kentucky are the second least in the country - due to coal.
Coal is useful for the economy.
It is a full-time vitality asset.
In contrast to sunlight based source of electricity, you can consume coal day in and day out to
generate large electricity watts. This implies that coal as a source of fuel is a dependable power
source that offers consistency for an advanced society. There is no compelling reason to counter
discontinuity as there is with other power advances that are being grown at this moment.
Coal can be utilized with renewable to lessen discharges.
Biomass advancements can be fused into existing coal offices, taking into account a double fuel
source in a similar power plant.
Carbon capture and storage innovations can decrease potential discharges.

A significant safe capture and storage of carbon dioxide alluded to as CCS, is an innovation that
would catch and store the carbon dioxide that is created by combusting this non-renewable
energy source (Chambers, & Dinsmore, 2014). Scrubbers and channels can likewise catch the
CO2 before it can get into the air. This restricts the measure of potential a dangerous atmospheric
deviation that would be activated by an expansion in coal use.
It is accessible in copious supply. This has made it dominate the fuel sources over the decades
Coal fuel is a high load factor.
Utilizing coal as a fuel furnishes a general public with the potential for nonstop power.
Numerous infrastructures requiring electricity are explicitly intended to utilize coal, offering a
decent usage rate for this particular fossil fuel.
Coal provides low capital investment
A large number of our fuel and electricity generation are as of now intended to utilize coal.
Therefore, industries and households incur little capital on investment in generating electricity
through the use of coal, as the man source of energy. The low capital investments thus bring
higher profitability in the manufacturing and production sector.
3. Should CO2 as a product of coal get the attention required to do long term investment
analysis
Yes
This is because coal used is not a renewable source

Conversely, in the event that we are consistently utilizing coal for our electric power needs, it
will, in the long run, end up exhausted. As a petroleum product, there is a limited supply. The
stockpiles available in some region s may diminish over a given period of time hence a back plan
of long term investment analysis should be enacted (Klatt, Schlaefke, & Moeller,2011).
Coal contains an abnormal state of carbon dioxide per Thermal Unit.
Researchers trust that one of the high contributor's s of an Earths global warming factor is carbon
dioxide that is physically created. When looking at all types of electricity generation that we use
today, coal contains the most carbon dioxide for each BTU that is created.
Coal mines bring about relocation and pulverization.
The carbon dioxide produced is highly linked to a health complication. This will increase the
health costs incurred therefore the need to carry out a long term investment analysis.
Carbon dioxide tons will continue increasing and are highly likely to cause extra costs in carbon
capture and storage. This increase in cost should be considered by creating a long term
investment analysis.
4. Why seriously pursue a tidal power alternative for 1500 households
This tidal power alternative can be seriously pursued in order to acquire the benefits that come
with the reduction of foreign importation of fuel (Duan, & Xiong, 2015). Through harnessing of
tidal energy in households on a large scale basis, foreign importation can be decreased thus
enhancement of energy security and reduction in overall cost of electricity generation.
Households will also benefit from the long lifespan of this alternative. The energy plants reduce
the money for selling the electricity to households making it an extensively cost-competitive

source. Large amounts of electricity will also be generated and transported to households' on a
daily basis
Renewable energy
Tidal energy is a sustainable power source. This electricity source is an aftereffect of the
gravitational fields from both the sun and the moon, joined with the world's revolution around its
hub, bringing about high and low tides.
Green
Tidal power source creates an environmental friendly surrounding. In addition to being a
sustainable power source, it doesn't discharge any atmosphere gases and does not take up a great
deal of space. This advantageous to the available households.
Compelling at Low Speeds
Water has multiple times higher thickness than air, which makes tidal sources conceivable to
produce household electricity at low speeds.
The tidal source is less expensive hence households will benefit from reduced cost of electricity
generation.
The step function of variable cost for incremental power
1. Survey the existing formula for the incremental power cost (changing from delivering one
item to creating two items- total cost of generating two-total cost of generating one particular
product) This can be used in incremental power cost.

2. Decide the sum acquired as the power cost of delivering one product. This comprises of every
single variable expense of creation including work, stock, and some other costs required with the
expense of delivering one thing.
3. Estimate the incurred cost of creating two products. Because of economies of scale, it may
cost less in creating two things than what was brought about in delivering every one
independently.
4. Estimation of the incremental cost through computation of the difference between the two
figures number 2 and 3 respectively.

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