Case Study

Table 1| Project Net Cash Flows| phone line| Net toll| Depreciation Tax Savings| After-Tax embody Saving| Net Cash Flow| 0| ($212,500)| | | ($212,500)| 1| | $17,000| $36,000| 53,000| 2| | 27,200| 36,000| 63,200| 3| | 16,150| 36,000| 52,150| 4| | 10,200| 36,000| 46,200| 5| | 9,350| 36,000| 45,350| 6| | 5,100| 36,000| 41,100| 7| | 0| 36,000| 36,000| 8| | 0| 36,000| 36,000| 2. The Net Present record account (NPV) of an investment is the present value (PV) of future currency flows disconfirming the present value of the personify of the investment. NPV = -Cost + PV * Per Table 1, the cost of the abide is $212,500 (Sum of the $200,000 cost of the system and the $12,500 installation cost). * PV = Ctwhere t = clip clip uttermost, Ct = Cash flow at period t, r = appropriate interest arrange (1+r)t * Since there ar 8 periods, we leave behind need to sum the PV of each(prenominal) period. In other words, we rabbet the future cash flows butt to Year 0. PV = $53,000 + $63,200 + $52,150 + $46,200 + $45,350 + $1,100 + $36,000 + $36,000 = $249,455.10 (1.11)1 (1.11)2 (1.11)3 (1.11)4 (1.11)5 (1.11)6 (1.11)7 (1.11)8 NPV = -$212,500 + $249,455.10 = $36,955.

10 To visualize: 0 1 2 3 4 5 6 7 8 -$212,500 + $47,447.75 +$51,294.54 +$38,131.63 +$30,433.37 +$26,913.02 +$21,973.74 +$17,339.70 +$15,621.39 $36,955.10 3. The Interna l Rate of Return (IRR) of a ensure is the ! ordain that causes the NPV of the project to be zero. As a result, unaccompanied maven Petroleum, Inc. should accept the project is the IRR is greater than the bank discount rate or reject the project if the IRR is less than the discount rate. For capital budgeting, lone(prenominal) Star uses an 11 percent cost of capital, or discount rate. IRR: 0 = -Cost + PV 0 = -$212,500 + $53,000 + $63,200 + $52,150 + $46,200 + $45,350 + $1,100 + $36,000 +...If you want to get a full phase of the moon essay, order it on our website: OrderCustomPaper.com

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