It is estimated that a poultry project under consideration by the ministry of food and agriculture of the Republic of Ghana will cost GHȻ 200 million. This is expected to generate a net benefit of GHȻ 160 Million, GHȻ 100 , GHȻ 200, and GHȻ 360 million in the first ,second , third and fourth years respectively with a social rate of discount of 20%. Required: a) Calculate the Payback Period for this Project? b) What does this figure in (i) mean? c) Explain the term Net Present Value . d) What is the NPV of the above Project.

It is estimated that a poultry project under consideration by the ministry of food and agriculture of the Republic of Ghana will cost GHȻ 200 million. This is expected to generate a net benefit of GHȻ 160 Million, GHȻ 100 , GHȻ 200, and GHȻ 360 million in the first ,second , third and fourth years respectively with a social rate of discount of 20%. Required: a) Calculate the Payback Period for this Project? b) What does this figure in (i) mean? c) Explain the term Net Present Value . d) What is the NPV of the above Project.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 15P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

a) It is estimated that a poultry project under consideration by the ministry of food and agriculture of the Republic of Ghana will cost GHȻ 200 million. This is expected to generate a net benefit of GHȻ 160 Million, GHȻ 100 , GHȻ 200, and GHȻ 360 million in the first ,second , third and fourth years respectively with a social rate of discount of 20%.
Required:
a) Calculate the Payback Period for this Project?
b) What does this figure in (i) mean?
c) Explain the term Net Present Value .
d) What is the NPV of the above Project.

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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