have everyone done somthing like this to give me a idea how OI shpuld start off,
ID: 2633660 • Letter: H
Question
have everyone done somthing like this to give me a idea how OI shpuld start off, or do have any example so make my own, please.
Capital Budgeting Project Create your own capital budgeting project.
This can be a work related, personal or hypothetical. For example determining whether you should pursue an advanced degree, purchase a house, car, change jobs, save for retirement or open a business. Prepare a paragraph or two explaining what your project is and what data you are using.
Start by drawing a time line and list costs (cash outflows). Add estimated cash inflows based on when they will occur. Determine the interest rate that will be used for discounting.
This will be your required rate of return for similar investments with the same risk.
Calculate the Net Present Value and Internal Rate of Return. Interpret the NPV results.
Was the NPV positive or negative? What does this mean? Interpret the IRR results.
Does the IRR exceed your cost of capital? Your cost of capital would be your required rate of return.
Show all calculations either by hand, calculator inputs or spreadsheet.
Summarize your results. What is your decision?
Explanation / Answer
In the cited example , I purchased a car at a price of $410760 and gve it on hire to a bank and the get rent of $90000 per year for 7 years. I purchased the car on loan at an interest of 6% per year. The NPV is positive when I discount at 6% and the IRR is 12% ( which is greater than my cost of capital 6%). So this is a acceptable investment.
Particular Year Amount PV@6% Initial Investment(A) 0 410760 410760 Inflow(B) 1 90000 84905.66 2 90000 80099.68 3 90000 75565.74 4 90000 71288.43 5 90000 67253.24 6 90000 63446.45 7 90000 59855.14 Net PV(B-A) 91654.33 Particular Year Amount D15 Initial Investment(A) 0 410760 Inflow(B) 1 90000 2 90000 3 90000 4 90000 5 90000 6 90000 7 90000 =90000/((1+D15)^1)+90000/((1+D15)^2)+90000/((1+D15)^3)+90000/((1+D15)^4)+90000/((1+D15)^5)+90000/((1+D15)^6)+90000/((1+D15)^7)=410760 Solving the above equation we find D15=IRR=12%Related Questions
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