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Pages:
1 page/≈275 words
Sources:
Level:
MLA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 3.9
Topic:

Expected Cash Flows (Essay Sample)

Instructions:

The essay was about projecting expected net cash flows for varied situations of a project:
Expected net cash flows
Year Project A Project B
0 ($600) ($625)
1 ($400) $210
2 ($100) $190
3 200 $180
4 $900 $170
5 $700 $220
6 $999 $213
7 ($111) $70
When each project's rate of return is 11 percent, which project should be selected? If the rate of return was 17 percent, what would be the proper choice?, What would be each project's IRR? and would be the payback period for these two projects?

source..
Content:
Student’s Name:
Instructor’s Name:
Course Code & Name:
Date of Submission:
Year

Cashflow (A)

Cashflow(B)

PVF (11%)

PV(A)

PV(B)

0

($600)

($625)

1

($600)

($625)

1

($400)

$210

0.9009

($360.36)

$189.19

2

($100)

$190

0.8116

($811.6)

$154.20

3

$200

$180

0.7312

$146.24

$131.62

4

$900

$170

0.6587

$592.83

$111.98

5

$700

$220

0.5935

$415.45

$130.57

6

$999

$213

0.5346

$534.07

$113.87

7

($111)

$70

0.4817

($53.47)

$33.72

NPV

($136.84)

$240.15

1. a. Present value when rate of return is 11%
Year

Cashflow (A)

Cashflow(B)

PVF (17%)

PV(A)

PV(B)

0

($600)

($625)

1

($600)

($625)

1

($400)

$210

0.8547

($341.88)

$179.49

2

($100)

$190

0.7305

($73.05)

$138.80

3

$200

$180

0.6244

$124.88

$112.39

4

$900

$170

0.5337

$480.33

$90.73

5

$700

$220

0.4561

$319.27

$100.34

6

$999

$213

0.3898

$389.41

$83.03

7

($111)

$70

0.3332

($36.99)

$23.32

NPV

$261.97

$103.1

I will choose project B because it has positive and higher net present value of $240.15.
1. b. Present value when rate of return is 17%
I will choose project A because it has higher net present value of $261.97
Where: PVF= (1+i)-n
PV= (PVF × Cashflow)
NPV=‑PV
2. Project IRR
a. Project A
NPV=Io - ‑nt=1(Ct(1+IRR)n)
Where: NPV=0
Io=Initial investment
Ct=Cashflow
n= number of years
IRR= Internal rate of return
Year

Cashflow (A)

Cashflow(B)

1

($400)

$210

2

($100)

$190

3

$200

$180

4

$900

$170

5

$700

$220

6

$999

$213

7

($111)

$70

‑

$2188

$1253

a. Project A
0= ($2188(1+IRR)7) - $600
(1+IRR) 7=$2188$600
(1+IRR)=7$2188$600
(1+IRR)=1.203
IRR=1.203-1
IRR= 0.203 or 20.3%
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