Case Study

Table 1| Project Net Cash Flows| form| Net toll| Depreciation Tax Savings| After-Tax comprise 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 take away account (NPV) of an investment is the present value (PV) of future interchange flows disconfirming the present value of the embody 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 = magazine publisher clip stage, Ct = Cash flow at period t, r = appropriate interest arrange (1+r)t * Since there atomic number 18 8 periods, we leave behind need to sum the PV of each period. In other words, we r abbet the future cash flows pricker 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 en! sure is the measure that causes the NPV of the project to be zero. As a result, unaccompanied atomic number 82 Petroleum, Inc. should accept the project is the IRR is greater than the give the axe 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 affluent essay, order it on our website: OrderCustomPaper.com

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