AF208 Corporate Accounting Assignment: Project NPV and Analysis

This document presents a comprehensive solution to a corporate accounting assignment, specifically addressing the valuation of investment projects. The assignment involves analyzing three potential projects for a piece of inherited land, considering factors like lease income, salvage values, and discount rates. The solution includes detailed calculations of Net Present Value (NPV) for each project, incorporating cash inflows and outflows, as well as a tax rate of 30% and a discount rate of 12%. The analysis identifies the most profitable project based on its NPV, offering insights into project selection and financial decision-making. The solution also includes references to support the analysis and conclusions drawn. The assignment adheres to the instructions provided, including word limits and referencing requirements.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:

1CORPORATE ACCOUNTING
Table of Contents
Question 1........................................................................................................................................2
References........................................................................................................................................4

2CORPORATE ACCOUNTING
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.

4CORPORATE ACCOUNTING
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.