Case Study

Table 1| Project Net Cash Flows| rails| Net toll| Depreciation Tax Savings| After-Tax terms Saving| Net Cash Flow| 0| ($212,500)| | | ($212,500)| 1| | $17,000| $36,000| 53,000| 2| | 27,200| 36,000| 63,200| 3| | 16,150| 36,000| 52,150| 4| | 10,200| 36,000| 46,200| 5| | 9,350| 36,000| 45,350| 6| | 5,100| 36,000| 41,100| 7| | 0| 36,000| 36,000| 8| | 0| 36,000| 36,000| 2. The Net Present hook on account (NPV) of an investment is the present value (PV) of future currency flows disconfirming the present value of the toll of the investment. NPV = -Cost + PV * Per Table 1, the cost of the abide is $212,500 (Sum of the $200,000 cost of the system and the $12,500 installation cost). * PV = Ctwhere t = pickup clip close, Ct = Cash flow at period t, r = appropriate interest arrange (1+r)t * Since there are 8 periods, we leave behind need to sum the PV of severally period. In other words, we rabbet the future cash flows masking to Year 0. PV = $53,000 + $63,200 + $52,150 + $46,200 + $45,350 + $1,100 + $36,000 + $36,000 = $249,455.10 (1.11)1 (1.11)2 (1.11)3 (1.11)4 (1.11)5 (1.11)6 (1.11)7 (1.11)8 NPV = -$212,500 + $249,455.10 = $36,955.

10 To visualize: 0 1 2 3 4 5 6 7 8 -$212,500 + $47,447.75 +$51,294.54 +$38,131.63 +$30,433.37 +$26,913.02 +$21,973.74 +$17,339.70 +$15,621.39 $36,955.10 3. The Internal Rate of Retur n (IRR) of a ensure is the regulate that c! auses the NPV of the project to be zero. As a result, unaccompanied feature Petroleum, Inc. should accept the project is the IRR is greater than the cut rate or reject the project if the IRR is less than the discount rate. For capital budgeting, alone(predicate) Star uses an 11 percent cost of capital, or discount rate. IRR: 0 = -Cost + PV 0 = -$212,500 + $53,000 + $63,200 + $52,150 + $46,200 + $45,350 + $1,100 + $36,000 +...If you want to get a enough essay, order it on our website: OrderCustomPaper.com

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