For Ann Harris
Bapestar1
PM640IP11.pptxChristopher Mihun
PM640-1704A-01
Professor Michael Hitson
NPV Calculations
The aim of the project is to determine whether the project is feasible.
This can be done under the consideration on the net present value .
Carrying the project will also be based on the cash flows.
The cash flows will include inflows.
They will also include determining the cash flows of a project.
Introduction
This is the process of understanding what it means to create information for determining a feasible project. It is also important in defining the necessary processes a company should consider in developing and understanding the financial information as pertaining to its services and value. The importance of this information is understanding and processing the nature of its value.
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Determine your initial investment = $420,o00
Determine your time for the investment = 4 years
Estimate the cash flows for each time period:
1st year = $110,000
2nd year = $121,000
3rd year = $133,100
4th year = $142 410
How to Calculate NPV
These are the initial steps in determining how effective it is for a company to understand the nature and value of controlling future growth. It is necessary to understand the process such as understanding financial awareness and growth based on the information from cash flows for each year.
3
Determine the rates of interest or discount = 10% = 0.10.
It also offers a means to discount the cash flows from the previous years while developing an understanding on the formula.
NPV+
How to calculate NPV …
The rate of discount is similar to rate of interest since it is the money one does not have right and it is an investment for the future. Through the formula one is able to calculate the necessary rates per year as presented through the formula. It is also important to use the necessary calculations to calculate and improve on performance.
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1st year = $110,000
Rate of 0.10%
= $100,000
NPV on the initial Year
Based on the information from the initial year. There is the need of calculating the second year and third year through fourth in determining the NPV of the project.
5
2nd year = 121,100 and 0.10 rate.
= $100,000
3rd Year = 133,100 and rate of 0.10%
= $100,000
NPV On the 2nd and 3rd years
As indicated in the calculations there is a steady balance from the returns and value of the present situations from the three years of investmen. This is important based on the company is allocations. Based on the information offered by the company.
6
The calculation from the final year are:
The rate is = 0.10%
And cash flow is = $146 410
= $100,000
Therefore, the total value from the four years is
= (10000+100000+100000+100000) = $400,000
NPV from the final year calculations
There is the information and calculations as indicated on the final four years of the investment.
It indicates the necessary present values from the 1st four years.
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Based on the calculations, the net present value is over -$20,000.
This is positive value indicating the necessary present value is a positive value. It also improves the necessary values of indicating the project is not feasible or doable.
Therefore, the company cannot invest on the project based on the information from the cash flows.
This is important information critical in overcoming the necessary plans for the company.
Recommendation
The net present value is a negative of -420,000 +400,000 = -20,000. therefore, the project is not feasible and the company should focus on another project.
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DeFusco, R. A., McLeavey, D. W., Anson, M. J., Pinto, J. E., & Runkle, D. E. (2015). Quantitative investment analysis. John Wiley & Sons.
Disney, S. M., Warburton, R. D., & Zhong, Q. C. (2013). Net present value analysis of the economic production quantity. IMA Journal of Management Mathematics, 24(4), 423-435.
References
