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Calculate project's initial investment outlay
The project's initial investment outlay equals the capital expenditure and the investment in net working capital, so the initial investment for this project is 12 million.
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Internal rate of return and NPV
(b) The initial investment and expected profits (cash) from 2 mutually exclusive capital investments being considered by a firm are as follows:
Investment A Investment B
Initial Investment 70,000 65,000
Year 1 profit 30,000
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Initial investment outlay
What is the projects initial investment outlay? Project's Initial investment outlay comprises the investments done in the beginning of the project. This includes Investments in Fixed assets and net working capital.
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Payback period
The PV of inflows is 54,000X5.216=281,664
The initial investment is the same as PV of inflows since NPV is zero
Initial Investment = 281,664
Payback period is the time taken to recover the initial investment
Payback period = initial investment/annual
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Payback period and NPV
Payback period is the time taken to recover the initial investment. In this case the initial investment
is $25,000 and we recover $5,000 each year in savings.
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Payback period
We first calculate the initial investment
NPV = PV of cash flows - intial investment
100,000 = 85,000 X PVIFA (5,10%) - initial investment
Initial investment = 322,217 - 100,000 = 222,217
In this case the initial investment is $222,217 and each year
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Payback Period
Project #1 Project #2
Annual cash flows $ 4,000 $12,000
Initial investment 20,000 36,000
Payback period is the time in which initial investment is recovered.
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Crittenden Company
The present value of the initial investment for each alternative is the amount that they put into the investment, i.e., Investment 1 = $110,000 and Investment 2 = $170,000.
2.
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Finance
NPV = Initial Investment + Cash flow for 5 years
75,000 = Initial Investment + 60,000/1.10 + 60,000/(1.10)2 + 60,000/(1.10)3 + 60,000/(1.10)4 + 60,000/(1.10)5
75,000 = - Initial Investment + 227,447.21
Initial Investment = 152,447.21
Simple regular
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NPV
. $3,765.91 NPV = PV of cash flows - initial investment
Using payback period we can calculate the initial investment
Payback period is the time taken to recover the initial investment.