A transport company has three potential projects planned. Each will require investment in two refrigerated vehicles at a total cost of K240, 000. The vehicle has a three-year life. The three projects are: Expected cash inflows, after deducting all expected cash outflows, are K120, 000 per annum. Expected cash inflows, after deducting all expected cash outflows, are K90, 000 per annum. Expected cash inflows, after deducting all expected cash outflows, are K80, 000 in year 1, K140, 000 in year 2 and K160, 000 in year 3. You are required to calculate for each project the payback period, the ARR, NPV and IRR, and to discuss why the results from NPV and IRR calculations may sometimes be incompatible with each other. The cost of capital is 10% for the business.
A transport company has three potential projects planned. Each will require investment in two refrigerated vehicles at a total cost of K240, 000. The vehicle has a three-year life. The three projects are: Expected cash inflows, after deducting all expected cash outflows, are K120, 000 per annum. Expected cash inflows, after deducting all expected cash outflows, are K90, 000 per annum. Expected cash inflows, after deducting all expected cash outflows, are K80, 000 in year 1, K140, 000 in year 2 and K160, 000 in year 3. You are required to calculate for each project the payback period, the ARR, NPV and IRR, and to discuss why the results from NPV and IRR calculations may sometimes be incompatible with each other. The cost of capital is 10% for the business.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
- A transport company has three potential projects planned. Each will require investment in two refrigerated vehicles at a total cost of K240, 000. The vehicle has a three-year life. The three projects are:
- Expected
cash inflows , after deducting all expectedcash outflows , are K120, 000 per annum. - Expected cash inflows, after deducting all expected cash outflows, are K90, 000 per annum.
- Expected cash inflows, after deducting all expected cash outflows, are K80, 000 in year 1, K140, 000 in year 2 and K160, 000 in year 3.
You are required to calculate for each project the payback period, the ARR, NPV and
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education