Martin Weir is evaluating a new project to determine viability for Jonathon's Restaurant's. As part of the new Jonathon's PMO, Marty is responsible for preparing project justifications and he must evaluate the project's cash flows and investment potential. As a first step, Marty developed a table of revenues and investments (see below) that he plans to use in calculating a variety of performance metrics including NPV.
Marty understands that a project's discount rate may not be constant throughout the life of the project and he plans to use 0.32 as the initial discount rate, switching to 0.19 beginning in year 4 to more accurately represent the cash costs and imputed risk over time.
Assume all cash flows occur at the end of the specified year and calculate all cash flow values and discounted cash flow values to three decimal places. Round discounted values to 3 decimal places before performing subsequent calculations.
| investment | Reveune |
| 13.8 | 0 |
| 14.9 | 20.3 |
| 12.3 | 27.5 |
| 17.6 | 24.9 |
| 18.8 | 28.9 |
| 0 | 14.3 |
| 0 | 26.4 |
| 0 | 25.2 |
| 0 | 18.7 |
Discounted Investment in year 3:
Cumulative Revenue as of year 5:
Cumulative Investment as of year 5:
NPV:
PV Total Revenue:
Total Investment:
NOTE:
- As per our policy, we only answer up to three sub-parts. Therefore the first three sub-questions are allowed. Please resubmit the remaining questions.
NPV:
It is the amount computed from the difference between discounted cash flows and cash outflows.
The general rule of NPV is to accept those projects with positive net present value.
Information Provided:
Discount rate (Year 0 - Year 3) = 32%
Discount rate (Year 4 - Year 8) = 19%
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