e) NPV calculations take into account the time value of money. Di with brief examples: (i) The time value of money. (ii) The three factors that contribute to the time value in investment appraisal.
e) NPV calculations take into account the time value of money. Di with brief examples: (i) The time value of money. (ii) The three factors that contribute to the time value in investment appraisal.
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
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Transcribed Image Text:NPV calculations take into account the time value of money. Di
with brief examples:
(i) The time value of money.
(ii) The three factors that contribute to the time value
in investment appraisal.
Transcribed Image Text:Investapp Ltd is considering whether to undertake one of two mutually exclusive
projects, each of which would require the purchase of an asset costing £50,000,
which would have a zero scrap value at the end of four years. Cost of capital is
estimated at 10%. The cash flows associated with the two projects are as follows:
Project X
£
Project Y
£
Initial investment
50,000
50,000
Net cash inflows:
Year 1
40,000
30,000
20,000
20,000
30,000
20,000
30,000
30,000
Year 2
Year 3
Year 4
Discount factors @ 10%
Rate
10%
Year
1.000
1
0.909
2
0.826
3
0.751
4
0.683
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