ACC 312 Study Guide - Midterm Guide: Discounted Cash Flow, Net Present Value, Cash Flow

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greenwalrus59

30 Nov 2017

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Npv is toda(cid:455)(cid:859)s (cid:448)alue of the differe(cid:374)(cid:272)e (cid:271)et(cid:449)ee(cid:374) (cid:272)ash i(cid:374)flo(cid:449)s a(cid:374)d outflo(cid:449)s projected at future dates, attributable to capital investments or long term projects. The value now of these net cash flows is obtained by using the discounted cash flow method with a specified rate of return. The npv of a capital investment project is calculated by: Discounting using a rate of return, discount rate, or cost of capital, to obtain. The difference in present values between cash inflows and cash outflows. The internal rate of return (irr) method calculates: The difference between the present value cash inflows and outflows, the. Through this calculation, the irr provides the exact rate of return that the project is expected to achieve. An organisation would then undertake the project if the expected rate of return, the irr, exceeds its target rate of return.

Related Questions

Capital Budgeting
Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12% rate of return to evaluate capital projects. The cash flows for the five years:

Year	Net Cash Outflows	Net Cash Inflows
Year	Amount invested	Net Cash Inflows
0	($100,000)
1		25,000
2		29,000
3		26,000
4		28,000
5		35,000


Requirements
1. Compute the accounting rate of return.
2. Compute the net present value of the investment using Excel's PV function.
3. Compute the net present value of the investment using Excel's NPV function.
4. Compute the profitability index, rounded to two decimal places.
5. Compute the internal rate of return of the investment using Excel's IRR function. Display to two decimal places, but do not round.

Excel Skills
1. Function PV
2. Function NPV
3. Function IRR

	Evaluate Glacier Creek Textiles' new manufacturing equipment.

	Data
	Annual discount Rate	0.12
	Cash Flow Year 0 (Cost)	(100,000)
	Cash Flow Year 1	25,000
	Cash Flow Year 2	29,000
	Cash Flow Year 3	26,000
	Cash Flow Year 4	28,000
	Cash Flow Year 5	35,000
	Useful Life in years	5
	Residual value	0



Requirement 1	Compute the Accounting Rate of Return

	Average annual operating income	Average amount invested	Accounting Rate of Return - ARR
	xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx	xxxxxxxxxxxxxx	xxxxxxxxxxxxxxxxx



Requirement 2	Compute the net present value of the investment using Excel's PV function.

	Period	Cash Flows
	1	(22,321)	Note: The first period is shown as an example.
	2	xxxxxxxx
	3	xxxxxxxx
	4	xxxxxxxx
	5	xxxxxxxx
	Present value of net cash flows	xxxxxxxx	Note: PV calculates the present value as a negative amount.
	Cost of Asset	xxxxxxxx
	Net Present Value	xxxxxxxx



Requirement 3	Compute the net present value of the investment using Excel's NPV function


	Present value of net cash flows	xxxxxxxxxx
	Cost of asset	xxxxxxxxxx
	Net Present Value	xxxxxxxxxx


Requirement 4	Compute the profitability index, rounded to two decimal places.

	Profitability index	xxxxxxxxxx


Requirement 5	Compute the internal rate of return of the investment using Excel's IRR function.
	Display to two decimal places, but do not round.

	IRR	xxxxxxxxx	Note: IRR requires a negative amount for the investment.

Places with xxxxx's are what needs to be filled in, and it's for excel so if I could see the references to which numbers and the formula used that would be helpful. Thank you!!

tanimpala296

The Spieth Golf Company is considering the addition of acomputerized robot to its equipment. The initial cost of theequipment is $1,000,000, and the robot is expected to have a usefullife of five years and $200,000 salvage value. The cost savings andincreased capacity attributable to the machine are estimated togenerate increases in the firm's annual cash inflows (beforeconsidering depreciation) of $400,000.

Spieth has a weighted average cost of capital of 10%. Its marginalcost of capital is 12% .

Based on the information above provide appropriate quantitativeanalysis to support your answers to the following

A. What is the net present value, NPV, of the investment?

B. Should the robot be acquired by the firm?

C. What is the estimated Internal Rate of Return, IRR, on thisproposed investment?

lavenderraven218

Using the Payback Method, IRR, and NPV Problems

Purpose of Assignment

The purpose of this assignment is to allow the student tocalculate the project cash flow using net present value (NPV),internal rate of return (IRR), and the payback methods.

Assignment Steps

Resources: CorporateFinance

Calculate the following time value of moneyproblems in Microsoft Excel or Word document. You must show all ofyour calculations.

If you want to accumulate $500,000 in 20 years, how much do youneed to deposit today that pays an interest rate of 15%?

What is the future value if you plan to invest $200,000 for 5years and the interest rate is 5%?

What is the interest rate for an initial investment of $100,000to grow to $300,000 in 10 years?

If your company purchases an annuity that will pay $50,000/yearfor 10 years at a 11% discount rate, what is the value of theannuity on the purchase date if the first annuity payment is madeon the date of purchase?

What is the rate of return required to accumulate $400,000 ifyou invest $10,000 per year for 20 years. Assume all payments aremade at the end of the period.

Calculate the project cash flow generated forProject A and Project B using the NPV method.

Which project would you select, and why?

Which project would you select under the payback method? Thediscount rate is 10% for both projects.

Use Microsoft^Â® Excel^Â® to prepare youranswer.

Note that a similar problem is in the textbook in Section5.1.

Sample Template for Project A and Project B:

Show all work.

Submit the all calcluations.

Click the Assignment Files tab to submit yourassignment.

tealelephant186

ACC 312 Study Guide - Midterm Guide: Discounted Cash Flow, Net Present Value, Cash Flow

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