Chapter 26, Problem S26.4SE

To determine

1)

Introduction:

Investment Project

• Investment Projects refer to projects that require a lot of capital expenditure in the form of investments in assets. These projects aim at being profitable and earning the investor a minimum desired return of return.
• Investment Projects can be in shares of companies, plant and machinery that is manufactured or purchased, research and development projects that aim to create new marketable and sellable goods or services.
• There are several methods to evaluate capital investment opportunities. Examples include Rate of return, Present Value, Payback period evaluation etc. These methods focus on evaluation of the investment projects and aim to present sufficient basis to evaluate prospective investment projects.

Net Present Value

• Net present value is the discounted value of the difference between the incremental cash inflows and cash outflows.
• A discounting factor is used to compute the present value of net incremental cash flows and usually the Internal Rate of Return is used as the discounting factor to arrive at the net present value.

To Compute:

Average Annual Cash inflow from expansion

To determine

2)

Introduction:

Investment Project

• Investment Projects refer to projects that require a lot of capital expenditure in the form of investments in assets. These projects aim at being profitable and earning the investor a minimum desired return of return.
• Investment Projects can be in shares of companies, plant and machinery that is manufactured or purchased, research and development projects that aim to create new marketable and sellable goods or services.
• There are several methods to evaluate capital investment opportunities. Examples include Rate of return, Present Value, Payback period evaluation etc. These methods focus on evaluation of the investment projects and aim to present sufficient basis to evaluate prospective investment projects.

Net Present Value

• Net present value is the discounted value of the difference between the incremental cash inflows and cash outflows.
• A discounting factor is used to compute the present value of net incremental cash flows and usually the Internal Rate of Return is used as the discounting factor to arrive at the net present value.

To Compute:

Average Annual Operating Cash inflow from expansion