The purpose of the following analysis is to determine whether PowerCo, a medium sized power company in the southeast United States should build a new generator. It is the belief of PowerCo that demand for electricity will significantly increase over the next 10-12 years. In order to meet this demand, the investment in a new generator needs to be reviewed. PowerCo’s Treasury department has prepared financial projections to facilitate the analysis of the investment. This information will be used for the analysis in order to provide a recommendation of whether PowerCo should build or not build the new generator.

The Present Value of the expected costs is $47.146 million dollars. Calculations are listed below: YearCost x PVIF (I, N)= Present Value
125PVIF(8,1) (.926)= 23.15
228PVIF(8,2) (.857)= 23.996
Total PV= 47.146

The Present Value of the expected after-tax cash profits are $47.235 million dollars. Calculations are listed below: YearCash Inflow x Interest Factor = Present Value
36.7944.764
47.7355.145
58.6815.448
69.6305.67
79.5835.247
89.5404.86
99.5004.5
109.4634.167
119.4293.861
129.3973.573
Total PV47.235

The expected Net Present Value of the investment is $89,000. This number, a positive Net Present Value, represents that the future cash inflows at the company’s cost of capital (8%) will cover the cost of the investment. This also increases the value of the company. Should the Net Present Value have been a negative amount, it would represent that the future cash inflows would not cover the cost of the investment. Calculations are listed below: NPV = PVI – PVO

NPV = 47.235-47.146
NPV = .089

There are risks to take in consideration when reviewing this information. Although the Treasury department has provided financial projections...

...Netpresent value
In finance, the netpresent value (NPV) or netpresent worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. In case when all future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of...

...The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.
现金流入的现值和现金流出的现值之间的差额。 NPV是用在资本预算分析的投资或项目的盈利能力。
The netpresent value of a project is the present value of current and future benefit minus the present value of current and future costs.
一个项目的净现值是当前和未来的收益减去当前和未来成本的现值的现值。...

...times attributed to the nature of a project.
Capital inv appraisal of new technologies: Problems, misconceptions and research directions
* Specifically, it has been alleged that the traditional appraisal methods of payback,
discounted netpresent value (NPV) and internal rate of return (IRR) undervalues the long-term
benefits; that traditional financial appraisals assume a far too static view of future industrial
activity, under-rating the effects and...

...Examples Of NetPresent Value (NPV), ROI and
Payback Analysis
Introduction
Terms and Definitions
NetPresent Value - Method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
Discount Rate - Also known as the hurdle rate or...

...promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive netpresent value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investment. d The...

...decision-making process. The netpresent value method is one of the useful methods that help financial managers to maximize shareholders’ wealth. The capital budgeting decision mergers Acquisitions
NetPresent Value
Financial managers are working for the shareholders and their primary goal is profit maximization in order to maximize the wealth of the company and the shareholders. The...

...Initial investment
An initial investment is the money a business owner needs to start up a firm. It might include the business owner's own money, money borrowed from an array of sources including family and friends or banks, or capital raised from investors. The term initial investment is also used as the money a business owner uses to invest in a capital investment venture such as a piece of equipment or a building.
IRR
The higher a projects internal rate of return,...

...-------------------------------------------------
FINC5001 Capital Market and Corporate Finance
-------------------------------------------------
Workshop 5 – Capital Budgeting II
1. Basic Concepts Review
a) In applying NetPresent Value, what factors do we include, and what factors do we ignore?
Use cash flows not accounting income
Ignore
* sunk costs
* financing costs
Include
* opportunity costs
* side effects
* working...

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