Assume straight line depreciation method is used. Calculate the project’s net pr

Question

Assume straight line depreciation method is used.

Calculate the project’s net present value. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.)

Calculate the net present value using a 9 percent discount rate. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

1 Calculate the project’s net present value. Year 0 1-7 years 8 year Cash flows $                        -25,00,000.00 $                         1,60,000.00 $                     3,30,000.00 Present value factor @7% (Note: for 1-7 years PV annuity factor is taken) 1 5.389289402 0.582009105 Present value of cash flows $                        -25,00,000.00 $                         8,62,286.30 $                     1,92,063.00 Net present value $                                                                                                                       -14,45,650.69 Note: There is no tax rate is given. Therefore no need to consider depreciation while calculating NPV 2 Calculate the project’s IRR. Year Cash flows 0 $                     -25,00,000.00 1 $                         1,60,000.00 2 $                         1,60,000.00 3 $                         1,60,000.00 4 $                         1,60,000.00 5 $                         1,60,000.00 6 $                         1,60,000.00 7 $                         1,60,000.00 8 $                         3,30,000.00 IRR -10% Therefore, IRR is less than 7% 3 Calculate the project’s net present value. Year 0 1-7 years 8 year Cash flows $                        -25,00,000.00 $                         1,60,000.00 $                     3,30,000.00 Present value factor @7% (Note: for 1-7 years PV annuity factor is taken) 1 5.032952835 0.50186628 Present value of cash flows $                        -25,00,000.00 $                         8,05,272.45 $                     1,65,615.87 Net present value $                                                                                                                       -15,29,111.67 Note: There is no tax rate is given. Therefore no need to consider depreciation while calculating NPV 4 Calculate the project’s IRR. Year Cash flows 0 $                     -25,00,000.00 1 $                         1,60,000.00 2 $                         1,60,000.00 3 $                         1,60,000.00 4 $                         1,60,000.00 5 $                         1,60,000.00 6 $                         1,60,000.00 7 $                         1,60,000.00 8 $                         3,30,000.00 IRR -10% Therefore, IRR is less than 9%

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