Managing Financial Principles and Techniques
Managing Financial Principles and Techniques
Assignment 2
Part 1: Financial Appraisal techniques
Part 2: Forecasting
Part 1-Financial Appraisal Techniques
Task 1.
NET PRESENT VALUE (NPV)
Year PROJECT X £000 Project Y £ 000 Discount Factor X Y
0 -200 -200 -200 -200
1 35 218 0.909 31.815 198.162
2 80 10 0.826 66.08 8.26
3 90 10 0.751 67.59 7.51
4 75 4 0.683 51.225 2.732
5 20 3 0.621 12.42 1.863 229 219
1)NET PRESENT VALUE (NPV)
X= 229-200=29
Y=219-200=19
PAYBACK PERIOD:
Cumulative Cash Flow
Year PROJECT X £000 Project Y £ 000 X Y
0 -200 -200 -200 -200
1 35 218 -165 -18
2 80 10 -85 28
3 90 10 5 38
4 75 4 80 42
5 20 3 100 45 100 45
TASK 2:
Net Present value
The present value of an investments future net cash flows minus the initial investment. If positive, the investment should be considered (unless an even better investment exists), otherwise it should not. It is a calculation based on the idea that £1 received in ten years time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value. The NPV calculation establishes what the value of future earnings is in todays money. To do the calculation you apply a discount % rate to the future earnings.
NPV is said to be short for net present value, it is the present value of net cash flows. It is commonly used for appraisals on projects. The advantage of using NPV is that it tells you if a project will add or deduct value from the business and hence decisions are taken of whether to accept it or reject it.
Advantages:
-It will also give accurate position for commonly special projects.
-It gives an absolute value.
-NPV allow for the time value for the cash flows considers both magnitude and timing of cash flows
• Consistent with shareholder wealth maximization: Added net present values generated by investments are represented in higher stock prices.
•
Assignment 2
Part 1: Financial Appraisal techniques
Part 2: Forecasting
Part 1-Financial Appraisal Techniques
Task 1.
NET PRESENT VALUE (NPV)
Year PROJECT X £000 Project Y £ 000 Discount Factor X Y
0 -200 -200 -200 -200
1 35 218 0.909 31.815 198.162
2 80 10 0.826 66.08 8.26
3 90 10 0.751 67.59 7.51
4 75 4 0.683 51.225 2.732
5 20 3 0.621 12.42 1.863 229 219
1)NET PRESENT VALUE (NPV)
X= 229-200=29
Y=219-200=19
PAYBACK PERIOD:
Cumulative Cash Flow
Year PROJECT X £000 Project Y £ 000 X Y
0 -200 -200 -200 -200
1 35 218 -165 -18
2 80 10 -85 28
3 90 10 5 38
4 75 4 80 42
5 20 3 100 45 100 45
TASK 2:
Net Present value
The present value of an investments future net cash flows minus the initial investment. If positive, the investment should be considered (unless an even better investment exists), otherwise it should not. It is a calculation based on the idea that £1 received in ten years time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value. The NPV calculation establishes what the value of future earnings is in todays money. To do the calculation you apply a discount % rate to the future earnings.
NPV is said to be short for net present value, it is the present value of net cash flows. It is commonly used for appraisals on projects. The advantage of using NPV is that it tells you if a project will add or deduct value from the business and hence decisions are taken of whether to accept it or reject it.
Advantages:
-It will also give accurate position for commonly special projects.
-It gives an absolute value.
-NPV allow for the time value for the cash flows considers both magnitude and timing of cash flows
• Consistent with shareholder wealth maximization: Added net present values generated by investments are represented in higher stock prices.
•