ACC501Assignment No.1 Solution

ACC501Assignment No.1 Solution fall 2017

1.      Calculate projected net cash flows for 6 years.

Years	Cash flows	Growth rate	Projected Cash Flows
	Millions	4% Annually	Millions
0	-30	1	-30
1	8	0.962	7.696
2	8	1.886	15.088
3	8	2.775	22.2
4	8	3.63	29.04
5	8	4.452	35.616
6	8	5.242	41.936

Payback Period (The desired payback period is 4 years)

Years	Projected Cash Flows	Payback period
	Millions	Millions
0	-30	30
1	7.696	22.304
2	15.088	7.216
3	22.2	-14.984
4	29.04	-44.024
5	35.616	-79.64
6	41.936	-121.576

Payback Period = 2 years + (7.216/15.088 * 12 Months)

Payback Period = 2 years + 6 Months Approx.

Net Present Value

Years	Projected Cash Flows	Depreciations	Net cash flows	Tax Rate	Net Cash flows	Discount Factor	Present Value
	Millions	Millions	Millions	0.4	Millions	0.08	Millions
0	-30		-30	0	-30	1	-30
1	7.696	5	2.696	1.0784	1.6176	0.926	1.497898
2	15.088	5	10.088	4.0352	6.0528	0.857	5.18725
3	22.2	5	17.2	6.88	10.32	0.794	8.19408
4	29.04	5	24.04	9.616	14.424	0.735	10.60164
5	35.616	5	30.616	12.2464	18.3696	0.681	12.5097
6	41.936	5	36.936	14.7744	22.1616	0.63	13.96181
Total							21.95237

Profitability Index = Present value of future cash flows / Initial investment

Profitability Index = 20.06237 Million / 30 Million

Profitability Index = 0.668746 or 67%