XYZ Pvt Ltd is considering investing in a project which has the following cash flows: £000 Initial investment 2,900 Cash flows: Year 1 800 Year 2 1,000 Year 3 1,200 Year 4 800 Year 5 500 The cost of capital is 8% Extracts from NPV (DCF) tables: Rate of discount 8% 9% 10% Year 0 1.000 1.000 1.000 Year 1 .926 .917 .909 Year 2 .857 .842 .826 Year 3 .794 .772 .751 Year 4 .735 .708 .683 Year 5 .681 .650 .621 Year 6 .630 .596 .564 TASKS i) Calculate the payback period (in years and months). ii) Calculate the ARR (accounting rate of return). iii) Calculate the NPV (net present value). iv) Explain briefly if you think that the project is viable. v) Discuss the potential sources of long-term finance available to a large company.
XYZ Pvt Ltd is considering investing in a project which has the following cash flows:
£000
Initial investment 2,900
Cash flows:
Year 1 800
Year 2 1,000
Year 3 1,200
Year 4 800
Year 5 500
The cost of capital is 8%
Extracts from NPV (DCF) tables:
Rate of discount 8% 9% 10%
Year 0 1.000 1.000 1.000
Year 1 .926 .917 .909
Year 2 .857 .842 .826
Year 3 .794 .772 .751
Year 4 .735 .708 .683
Year 5 .681 .650 .621
Year 6 .630 .596 .564
TASKS
i) Calculate the payback period (in years and months).
ii) Calculate the ARR (accounting
iii) Calculate the NPV (
iv) Explain briefly if you think that the project is viable.
v) Discuss the potential sources of long-term finance available to a large company.
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