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%
