ecessary construction material and also paying the contractor wit ollowing expected cash flows of RM200 million, RM370 million, R nillion and RM700 million for Year 1, 2, 3 and 4 respectively. Ass iscount rate of 12% per annum, will the company consider the proje omment on the action to be taken.
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- Kumi Ltd is considering an investment in a project, which requires an immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years: Year 1 2 3 4 5 Cash inflow (GHS) 6,500 7,750 5,750 4,750 3,750 You are required to estimate the internal rate of return of this project assuming the company’s cost of capital is 16%.Kumi Ltd is considering an investment in a project, which requires an immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years:Year 1 2 3 4 5 cashflows (GHS) 6,500 7,750 5,750 4,750 3,750You are required to estimate the internal rate of return of this project assuming the company’s cost of capital of 16%.A firm is considering an investment project that requires an initial outlay of RM5,000,000. The project is expected to provide cash inflows of RM1,800,000 in year 1, RM1,900,000 in year 2, RM1,700,000 in year 3 and RM1,300,000 in year 4. a. What is the net present value (NPV) for the project if its cost of capital is 15%? b. What is the profitability index (PI) for the project? c. Why is NPV considered to be a superior method of evaluating the cash flows from a project? d. Although it is conceptually unsound, the payback period is very popular in business as a criterion for assigning priorities to investment projects. Why is it unsound and why is it popular?
- Happy Holiday Sdn. Bhd. (HHSB) has hired you to perform a feasibility study of a new project of integrated concept of Homestay that requires a RM5, 500,000 initial investment. HHSB expects a total annual operating cash flow of RM968,000 for the next 10 years. The relevant discount rate is 10 percent. Cash flows occur at year end. Required: i) calculate the Net Present Value (NPV) of the homestay. ii) assuming after one year, the estimate of the remaining annual cash flows will be revised either upward to RM1, 925,000 or downward to RM319,000. Each revision has an equal probability of occurring. At that time, the project can be sold for RM1,430,000. Calculate the revised NPV given that the company can abandon the project after one year.ABC Corporation is considering an investment project proposal that requires an initial outlay of RM500,000. The project is expected to provide net cash inflows of RM125,000 in year 1, RM250,000 in year 2, RM300,000 in year 3, RM225,000 in year 4, RM100,000 in year 5, RM25,000 in year 6 and RM0 in year 7. (a) Compute the payback period for the project.(b) Compute the net present value of the project if the firm estimates its cost of capital to be 14%. Based on the project’s net present value, should Awesome Corporation make thisinvestment? Why?(c) Why is net present value considered to be a superior method of evaluating the cash flows from a project?(d) Evidence suggests that in spite of the theoretical superiority of net present value, financial managers use the internal rate of return approach just as often as the net present value method.Discuss the above statement.Honeydew Bhd has been presented with an opportunity to invest in a project. Investment Required is RM60,000,000, Annual Gross Income is RM14,000,000, Annual Operating Costs is RM5,500,000 and nil for Salvage Value after 10 years. The project is expected to operate as shown for ten years. If your management expects to make 10% on its investment before taxes. Calculate the Internal Rate of Return (IRR) for this project and would you recommend Honeydew Sdn. Bhd this project? Explain.
- Timber Plc have identified a 5-year capital investment project and are preparing a schedule of cash flows for the project to identify whether they should proceed with investment. If the project goes ahead, the company will raise a 5-year loan of €5 million to finance the project with an annual interest rate of 10%. How should the cash flows on the loan be treated in the schedule of project cash flows? Include interest cash flows in times 1 to 5 and repayment of loan principal at time 5. Include receipt of €5m at time 0, interest for times 1 to 5, and repayment at time 5. Do not include cash flows on the loan as they are a sunk cost Do not include cash flows on the loan as they are included in the cost of capitalA firm is considering an investment project that requires an initial outlay of RM10,000,000. The project is expected to provide net cash flows of RM6,500,000 in year 1, RM3,000,000 in year 2, RM3,000,000 in year 3 and RM1,000,000 in year 4.(a) What is the net present value (NPV) for the project if its cost of capital is15%? What does the NPV value represent with respect to the firm’s shareholders? (b) What is the profitability index (PI) for the project? What is the relationship between the PI and the NPV?(c) “Evidence suggests that in spite of the theoretical superiority of NPV,financial managers use the internal rate of return (IRR) approach just asoften as the NPV method.” Discuss the statement.Calculate the net present value of a project which requires an initial investment of ₱1,000,000 with a 5% discount rate. Net cash flows for six years of the investment are ₱250,000 with each cash flow occurring at the end of the year. What is the PV of the cash flows? What is the NPV of the project? Should the project be accepted?
- Ajeet Construction Ltd is planning to take a project which initial cash outflow is 100000.The expected cash inflows from this are tk 40000, tk25,000, tk 20000,tk 35,000, & tk.35000. Calculate the NPV & IRR of this project, when rate of cost of capital is 15%.The company is considering two projects. The initial investment in the Project A and Bare $50,000 and $60,000 respectively. The Project A will generate annual cash flows of$26,000 for four years and the Project B will generate annual cash flows of $30,000 forfour years. What must be the required rate of return, so that the company will beindifferent between these two projects?(A)The required rate of return must be 21.86%.(B) The required rate of return must be 37.42%.(C)The required rate of return must be 34.90%.(D) The required rate of return must be 31.39%.Calculate the Net Present Value for a project whose cost of capital is 15% and initial after-tax cost is RM5,000,000 and is expected to provide after-tax operating cash inflows of RM1,800,000 in year 1, RM1,900,000 in year 2, RM1,700,000 in year 3, and RM1,300,000 in year 4. Tangshan Mining Company is considering investing in a new mining project. The firm's cost of capital is 12 % and the project is expected to have an initial after-tax cost of RM5,000,000. Furthermore, the project is expected to provide after-tax operating cash flows of RM2,500,000 in year 1, RM2,300,000 in year 2, RM2,200,000 in year 3, and (RM1,300,000) in year 4. (i) Calculate the project's Net Present Value. (ii) Calculate the project's Internal Rate of Return. (iii) Decide whether the firm should invest or not.