Calculate the Present Value, Net Present Value, Payback and Internal Rate of Ret
ID: 2752970 • Letter: C
Question
Calculate the Present Value, Net Present Value, Payback and Internal Rate of Return for the following problem Container Cash Flows WACC 10% Years 0 1 2 3 4 5 6 7 8 9 10 Cash Flows (100,000.00) 19,000.0 19,000.0 19,000.0 19,000.0 19,000.0 20,000.0 25,000.0 17,000.0 18,000.0 20,000.0 1. PV 2. NPV (100,000.00) 19,000.00 19,000.00 19,000.00 19,000.00 19,000.00 20,000.00 25,000.00 17,000.00 18,000.00 20,000.00 3. Payback 4. IRR 5. What is the Time Value of Money? Calculate the Present Value, Net Present Value, Payback and Internal Rate of Return for the following problem Container Cash Flows WACC 10% Years 0 1 2 3 4 5 6 7 8 9 10 Cash Flows (100,000.00) 19,000.0 19,000.0 19,000.0 19,000.0 19,000.0 20,000.0 25,000.0 17,000.0 18,000.0 20,000.0 1. PV 2. NPV (100,000.00) 19,000.00 19,000.00 19,000.00 19,000.00 19,000.00 20,000.00 25,000.00 17,000.00 18,000.00 20,000.00 3. Payback 4. IRR 5. What is the Time Value of Money?Explanation / Answer
Present Value = Future value / (1 + r)n , where r = Rate of interest & n = number of years.
Top of Form
Period
Bottom of Form
Cash Flow
Present Value
0
-100,000.00
-100,000.00
1
19,000.00
17,272.73
2
19,000.00
15,702.48
3
19,000.00
14,274.98
4
19,000.00
12,977.26
5
19,000.00
11,797.51
6
20,000.00
11,289.48
7
25,000.00
12,828.95
8
17,000.00
7,930.63
9
18,000.00
7,633.76
10
20,000.00
7,710.87
Total:
119,418.65
NPV = Present Value of Cash Inflows – Initial Investment = $119,418.65 - $100,000 = $19,418.65
Payback Period = Investment Required / Net Annual Cash Inflow
(1) As the cash inflow is uneven, the payback period formula cannot be used to compute the payback period. We can compute the payback period by computing the cumulative net cash flow as follows:
Year Net cash flow Cumulative net cash inflow
1 $19,000 $30,000
2 $19,000 $38,000
3 $19,000 $57,000
4 $19,000 $76,000
5 $19,000 $95,000
6 $20,000 $20,000
Payback period is more than 5 years & less than 6 years because the cumulative cash flow at the end of 5th year becomes $95,000 & the amount to be recovered is only $5,000, while the cash inflow is of $20,000.
So, the Payback Period = 5 + [5,000 / 20,000] = 5.3 years.
Internal Rate of Return is the rate at which the NPV becomes “0”. This can be calculated using below mentioned IRR Formula:
IRR = 14.31% p.a (Put the valued in the given formula)
The Time Value of Money - The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. It is also referred as “Present Discounted Value”.
Everyone knows that money deposited in a savings account will earn interest. Because of this universal fact, we would prefer to receive money today rather than the same amount in the future.
For example, assuming a 5% interest rate, $100 invested today will be worth $105 in one year ($100 multiplied by 1.05). Conversely, $100 received one year from now is only worth $95.24 today ($100 divided by 1.05), assuming a 5% interest rate
Top of Form
Period
Bottom of Form
Cash Flow
Present Value
0
-100,000.00
-100,000.00
1
19,000.00
17,272.73
2
19,000.00
15,702.48
3
19,000.00
14,274.98
4
19,000.00
12,977.26
5
19,000.00
11,797.51
6
20,000.00
11,289.48
7
25,000.00
12,828.95
8
17,000.00
7,930.63
9
18,000.00
7,633.76
10
20,000.00
7,710.87
Total:
119,418.65
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