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ROI
Present value of projected cash inflow -44,643 -39,860 -35,589 -31,776 -28,371
Total present value of projected cash inflow = -180,239
NPV = Initial investment + present value of projected cash inflow
NPV = -75,000
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NPV, IRR and Profitability Index
Solution:
NPV = PV of cash inflows - initial investment
PV of cash inflows = 125,000/1.1 + 75,000/1.1^2 + 100,000/1.1^3 + 50,000/1.1^4
PV of cash inflows = 284,902
NPV = 284,902-275,000
NPV = $9,902
IRR is the discounting rate that makes the
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Financial payback, NPV, IRR, MIRR
Calculate Financial payback, NPV, IRR, MIRR
If annual inflation is 3%, calculate project's inflation adjusted Fin. payback, NPV, IRR and MIRR
Please see the attached file. This explains the steps to compute the Financial payback, NPV, IRR, MIRR
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Net present value and profitability index
Solution:
NPV = PV of cash flows - initial investment
Profitability Index = PV of cash flows/initial investment
To calculate the PV of cash flows discount the cash flows by the return on investment.
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NPV
Calculate the net present value of the transaction NPV = PV of after tax cash inflows - initial investment
The after tax cash inflows are
Year 1 - 75,000 X (1-0.4) = 45,000
Year 2 - 70,000 X (1-0.4) = 42,000
Year 3 - 65,000 X (1-0.4) = 39,000
Year
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Price of a six-year $1000 face-value bond
the IRR for the following investment project: Initial investment is $75,000; inflows are $20,000 for the next five years; Required rate of return is 15%.
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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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Calculate payback period, discount rate, NPV, IRR
325966 Calculate payback period, discount rate, NPV, IRR for 3 possible investments Please see attached file.
As director, you are reviewing three potential investment projects with the following cost and cash flow projections.
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Capital Budgeting and Constant Growth Stock
project B of less than average risk, will produce cash flow of $275,00 at the end of the year 3 and 4 only. Given the information provided Bingo should accept which investment and why?
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Capital Budgeting
The fraction of year 4 needed to recover this amount is 55,000/150,000=0.4. The payback period for Process B is 3.4 years.
NPV is calculated as Sum (PV of cash inflows) - initial investment.