Complete Table 1 by adding the cash flows for years four and five. You can see t
ID: 2629359 • Letter: C
Question
Complete Table 1 by adding the cash flows for years four and five.
You can see the study here:
https://www.ache.org/pubs/hap_companion/gapenski%20fhf/FHFCASE5_edited.pdf
Complete Table 1 by adding the cash flows for years four and five What is the project's payback and net present value (NPV) interpret each of these measures. Suppose that the project would be allocated 510.000 of existing. costs. Should these costs be included in the cash flow analysis? Explain Conduct a scenario does the worst-case value help in assessing ability to bear the risk of this investment?Explanation / Answer
1.
2.
NPV is positive hence projct should be accepted
IRR is greater than cost of capital and payback period is less than 5 years. Hence project is acceptable
3. the existing overhead cost should not be included in the cash flow analysis because this cost is not relevant to analysis. the overhead cost of 10,000 is unavoidable and will exist irrespective of whther the project is undertaken or not.
0 1 2 3 4 5 Land opportunity cost $ (500,000) Building $ (10,000,000) Net revenues $ 5,000,000 $ 5,150,000 $ 5,304,500 $ 5,463,635 $ 5,627,544 Less Labor costs $ 800,000 $ 824,000 $ 848,720 $ 874,182 $ 900,407 Utiities $ 50,000 $ 51,500 $ 53,045 $ 54,636 $ 56,275 Supplies $ 2,000,000 $ 2,060,000 $ 2,121,800 $ 2,185,454 $ 2,251,018 Incremental overhead $ 36,000 $ 37,080 $ 38,192 $ 39,338 $ 40,518 Net income $ 2,114,000 $ 2,177,420 $ 2,242,743 $ 2,310,025 $ 2,379,326 Plus: Net land salvage value 500000 Plus: net building/equipment value 5000000 Net cash flow $ (10,500,000) $ 2,114,000 $ 2,177,420 $ 2,242,743 $ 2,310,025 $ 7,879,326Related Questions
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