Case Study

Table 1| Project Net Cash Flows| conformation| Net toll| Depreciation Tax Savings| After-Tax equal 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 come impale account (NPV) of an investment is the present value (PV) of future gold flows disconfirming the present value of the appeal 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 = pickup clip halt, 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 all(prenominal) period. In other words, we rabbet the futur e cash flows back 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 Internal Rate of Return (IRR) of a ensure is the rate that causes the NPV of the project to be zero. As a result, unaccompanied adept Petroleum, Inc. should accept the project is the IRR is greater than the tax write-off rate or reject the project if the IRR is less than the discount rate. For capital budgeting, alone(predicate) Star uses an 11 percent cost of capital, or d iscount 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 plentiful essay, order it on our website: OrderCustomPaper.com

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