For NPV you need to consider the cost of the project, residual value, the additional working capital requirement today, the present value of when the working capital won't be needed at the end for the terminal year cash flow, and finally any tax effects which you don't have to worry about here. Good luck.
Hello everyone :)
I have a managerial accounting question and would really appreciate if someone could help me. I have an exam coming up but I have fallen ill and unfortunately missed a few lectures. I have a friends notes but am really struggling to follow how some of the solutions of were gotten.
I will give 10 points to anyone who answers and explains the process. I understand it might be a bit time consuming but you have no idea how thankful I would be for this help!
The Question states:
A company is considering whether or not to invest in an item of equipment for ￡60,000.
An investment of ￡12.50 in additional working capital would also be required. The cash profits from the new item of equipment are estimated to be.
Year Cash Profit
￡
1 10,000
2 25,000
3 30,000
4 22,500
The equipment would have a resale value of ￡6,000 at the end of year 4. The cost of capital is 12% and the relevant discount factors are:
Year
1 0.893
2 0.797
3 0.712
4 0.636
Required:
i. Calculate, in years and months, the payback period for the project/
ii. Calculate the Net Present value of the project
Again thank you so much!
