(p8) Question 16 Answer = 3 Net profit is the difference between the total costs and the total income over the life of the project. ((-155 000) + (-5 000) + 40 000 + 50 000 + 50 000 + 50 000 + 30 000) = R60 000 Question 17 Answer = 4 Net profit is the difference between the total costs and the total income over the life of the project. ((-140 000) + 15 000 + 5 000 + 20 000 + 30 000 + 60 000 + 70 000) = R60 000 Additional information about net profit: advantage as method for comparing projects
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Accounting rate of return The accounting rate of return (ARR) is a way of comparing the profits you expect to make from an investment to the amount you need to invest. The ARR is normally calculated as the average annual profit you expect over the life of an investment project‚ compared with the average amount of capital invested. For example‚ if a project requires an average investment of £100‚000 and is expected to produce an average annual profit of £15‚000‚ the ARR would be 15 per cent. The
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CHAPTER 5 Net Present Value and Other Investment Criteria Answers to Problem Sets 1. a. A = 3 years‚ B = 2 years‚ C = 3 years b. B c. A‚ B‚ and C d. B and C (NPVB = $3‚378; NPVC = $2‚405) e. True f. It will accept no negative-NPV projects but will turn down some with positive NPVs. A project can have positive NPV if all future cash flows are considered but still do not meet the stated cutoff period. 2. Given the cash flows C0‚ C1‚ . . . ‚ CT
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years. What is the rate of interest to the firm? 2. a.Explain the mechanism of calculating the present value of cash flows..What is annuity due? How can you calculate the present and future values of an annuity due? Illustrate b.”The increase in the risk-premium of all stocks‚irrespective of their beta is the same when risk aversion increases” Comment with practical examples 3. a.How leverage is linked with capital structure? Take example of a MNC and analyse. b. The following figures relate to
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1. How much will $1000 deposit in savings account earning a compound annual interest rate of 6% be worth at the end of the following number years? a) 3 years $1‚191 b) 5 years $1‚338 c) 10 years $1‚791 2. If you require a 9% return on your investment which would you prefer? a) $5‚000 today PV = $5‚000 b) $15‚000 five years from today PV = $9‚748.50 c) $1‚000 per year for 15 years PV = $8061 Select option b
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Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons. If given a choice I would choose NPV‚ because of the potential to anticipate profitability. As it is assumed that the objective of a firm is to create as much shareholder wealth as possible for its owners through the efficient use of resources‚ the preferred method in determining whether or not to invest
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Assignment “Net Promoter Score: a strong indicator of loyalty and growth?” 2 Table of Content Page Introduction…………………………………………………………………………3 1 Main advantages of the NPS……………………………………………...4 1.1 1.2 1.3 2 Simple and understandable – the calculation of the NPS……...4 Simple categorization of the customer groups - …………………. application of the NPS……………………………………………...5 Motivating Change - customer-focused management by NPS...6 Main disadvantages of the NPS ................................
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2nd 2008 Pearson Other Reading Sr No Journals articles as Compulsary reading (specific articles‚ complete reference) OR-1 The Cost of Capital for Alternative Investments- Harvard Business School Working Paper -http://www.hbs.edu/research/pdf/12-013.pdf ‚ OR-2 wing Your Nest Egg: Risk and Return-Iowa State University-http://www.extension.iastate.edu/publications/pm1821.pdf ‚ ‚ OR-3 Inventory Management of a Fast-Fashion Retail Network-Available at https://www.google
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applying Net Present 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 capital * taxation * inflation 2. Practice Questions a) After spending $3 million on research‚ Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of $6 million. This investment will be
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percent rate of return on their investment‚ calculate the venture’s present value. B. Now assume that the Year 6 cash flows are forecasted to be $900‚000 in the stepping stone year and are expected to grow at an 8 percent compound annual rate thereafter. Assuming that the investors still want a 40 percent rate of return on their investment‚ calculate the venture’s present value. C. Now extend Part B one step further. Assume that the required rate of return on the investment will
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