Академический Документы
Профессиональный Документы
Культура Документы
800,000
10.00
1,000,000
6.50
1,700,000
1,000,000
40%
1,200,000
7,200,000
10%
$
$
1
$
8,000,000
5,200,000
1,700,000
1,000,000
100,000
40,000
60,000
1,000,000
1,060,000
1,060,000
(1 + .10)
1.10
963,636
963,636
Payback Period
Initial Investment
Net cash flow
7,200,000
(1,060,000)
6,140,000
(2,740,000)
3,400,000
(2,740,000)
660,000
3.24
Defined as the ratio of average after-tax profit to average book investment - initial investment less
It is an average ROI
Data on Spectra's Dye Plant
pg. 20, exhibit 2.3
Year
Net Income
0
1
2
3
4
60,000
1,740,000
1,740,000
1,740,000
5
Total
Average net income (total income/#of yrs)
1,740,000
7,020,000
$
1,404,000
7,200,000.00
2,200,000.00
9,400,000.00
4,700,000.00
1,404,000.00
4,700,000.00
29.9%
Profitability Index
(Benefit cost ratio)
1,060,000
2,740,000
2,740,000
2,740,000
4,940,000
22.44%
PI =
10,225,510
7,200,000
1.42
yr 1
per pound
per pound
per year
per year
freed at end of yr 5
2
16,000,000 $
10,400,000
1,700,000
1,000,000
2,900,000 $
1,160,000
1,740,000
3
16,000,000 $
10,400,000
1,700,000
1,000,000
2,900,000 $
1,160,000
1,740,000
4
16,000,000 $
10,400,000
1,700,000
1,000,000
2,900,000 $
1,160,000
1,740,000
1,000,000
2,740,000
1,000,000
2,740,000
1,000,000
2,740,000
2,740,000 $
(1 + .10)2
1.10
2,264,463
2,740,000 $
(1 + .10)3
1.10
2,058,603
2,740,000 $
(1 + .10)4
1.10
1,871,457
5
16,000,000
10,400,000
1,700,000
1,000,000
2,900,000
1,160,000
1,740,000
1,000,000
2,740,000
1,200,000
1,000,000
4,940,000
(1 + .10)5
1.10
3,067,351
10,225,509.93
(7,200,000.00)
2,264,463
2,740,000
0.8264
2,058,603
2,740,000
0.7513
1,871,457
2,740,000
0.6830
Year
1
2
3
0.24
years
Initial Investment
7,200,000
7,200,000
7,200,000
7,200,000
7,200,000
(Depre)
Cumulative
Investment
1,000,000
2,000,000
3,000,000
4,000,000
Net Investment
(book value)
7,200,000
6,200,000
5,200,000
4,200,000
3,200,000
3,025,510
3,067,351
4,940,000
0.6209
7,200,000
5,000,000
2,200,000
total
divide by 2
22.44%
$10,225,509.93
$10,225,509.93 using excel NPV formula
FIN 630
Chapter 2
Sample Problems
1).
Investment
Savings in energy costs
Production
Calculate the savings per year
1,500,000.00
$10.00 per ton
25,000 tons per year
25,000.00 A
10.00 B
250,000.00 AxB = C
1,500,000.00
(250,000.00)
1,250,000.00
(250,000.00)
1,000,000.00
(250,000.00)
750,000.00
(250,000.00)
500,000.00
(250,000.00)
250,000.00
(250,000.00)
0.00
Year
D
1.00
2.00
3.00
4.00
5.00
6.00
+ 250000/r
IRR =
16.67%
(1,500,000.00)
250,000.00
16.67%
D/C
6.00 years
FIN 630
Chapter 2
Sample Problems
2).
a).
Polaroid installed new equipment which results in
savings annually
$
90,000.00
Equipment cost
$
500,000.00
Depreciation
SL
Life
8 yr
Tax rate
40%
Discount Rate
9%
What is NPV?
Year
Investment
Savings
Depreciation
subtotal
Tax @ 40%
add back depre
Total
NPV calculation
Less orig investment
NPV =
(500,000)
90,000
90,000
(62,500.00)
(62,500.00)
27,500.00
27,500.00
11,000.00
11,000.00
62,500.00
62,500.00
(500,000.00)
79,000.00
79,000.00
$437,251 using excel to calculate
(500,000)
(62,749) negative NPV, don't accept project
b).
Are there other factors that might influence this investment decision?
Assumption is the ocst of using the new equipment and the cost of its disposal remain
over time. This is most likely not the case. Small increases will change the picture.
3
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
cept project
4
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
5
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
6
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
7
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
8
90,000
(62,500.00)
27,500.00
11,000.00
62,500.00
79,000.00
NPV Profile
The relationship between the NPV of a project and the discount rate
used to calculate the NPV is known as the project's NPV Profile.
pg. 24 Box 2.3
Year
0
1
2
3
Cash Flow
(200)
1,200
(2,200)
1,200
100%
Year
Cash Flow
0
1
2
3
Total
IRR =
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
PV@200%
PV@100%
1
PV@0%
Box 2.2
pg. 16
Application: Puffin Steel's Iron Ore Project
What are the NPV's for the mine and the railway?
PVIFA:
Present Value Interest Factor of an Annuity
Info:
Mine
Cost of extracting
$
50 per ton
Sale price
$
150 per ton
Production
$
200,000 per yr
Life of mine
20 yrs
Cost of equipment
$
90,000,000
Rate of return required
15%
Sale
Less: cost
150
(50)
100
200,000
20,000,000
6.2593
125,186,000
(90,000,000)
35,186,000 positive
x
PVIFA factor
Less: investment
NPV of Railway
Info:
Railway
Investment Cost
Cost of transporting
Rate of return required
Sale
Less: cost
$
$
30,000,000
10 per ton
15%
0
(10)
(10)
200,000 production per yr
(2,000,000)
6.2593
(12,518,600)
(30,000,000)
(42,518,600) negative
x
PVIFA factor
Less: investment
NPV of Mine
or of an Annuity
Calculate PVIFA
ction per yr
PVIFA Calculator
Interest rate per period:
Number of period:
Calculate PVIFA
PVIFA Result
6.2593
Where:
PVIFA = present value interest factor of annuity
r = interest rate per period
n = number of periods
link to tool:
http://www.miniwebtool.com/pvifa-calculator/?r=15&n=20
%
15
20
Chapter 2
Appendix 2.A
Problem 1
Info:
New Machine Cost
$
120,000
Life
6
Net annual Cash Flow
$
40,000
Option to sell machine end of yrs 1- 6
Discount Rate
12.00%
Net Cash Flows will receive frio the sale of the machine at the end of each year:
End of Year
1
2
3
4
5
6
Year
CF's
0
(120,000)
1 $
40,000
2
40,000
3
40,000
4
40,000
5
40,000
6
40,000
1
2
3
4
5
6
144,192
164,456
PVIFA Calculator
Interest rate per
period:
Number of period:
PVIFA Result
6.2593
Where:
PVIFA = present value interest factor of annuity
r = interest rate per period
n = number of periods
link to tool:
http://www.miniwebtool.com/pvifa-calculator/?r=15&n=20
Net CF's
(120,000)
40,000
40,000
40,000
40,000
40,000
40,000
see link
NPV
PVIFA calc
(8,994)
(8,937)
26,301
35,380
36,798
39,693
0.8929
1.6901
2.4018
3.0373
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
40,000
40,000
3.6048
4.1114
29,457
39,625
machine investment
(10,072.80)
(5,287.85)
12,264.46
13,046.15
10,208.08
9,654.40