Based on the information provided below, compute the Net Present Value of the pr

Question

Based on the information provided below, compute the Net Present Value of the project (CO 3). A Net Present Value Template is Attached. (Hint: Don't forget to update the discount rate to the amount required for this project and add your cash flow numbers.) Royal Dutch Shipping is planning on Investing $1,600,000 to buy a freighter. Prepare a net present value analysis based on the assumption that the freighter will be sold for 10% of it's cost at the end of the year 5. Annual operating cash flows for the project are: Year 1: $380,000 Year 2: $390,000 Year 3: $400,000 Year 4: $410,000 Year 5: $420,000 Prepare a loan amortization schedule based on monthly payments for the $1,600,000 if Royal Dutch Shipping can pay 10% down on a loan for $1,100,000 and can get a loan for 6% interest for 10 years (do not include this in your Net Present Value computations. This is a separate issue. (CO 3). (Hint: www.bankrate.com/calculators/mortgages/amortization-calculator.aspx

Explanation / Answer

Answer for NPV

Answer for Loan amortization schedule

Royal Dutch Shipping Total Cash Flows Year 0 1 2 3 4 5 Cost of freighter -1600000 Operating cash flows 380000 390000 400000 410000 420000 Salvage Value 160000 Total Cash Flows -1600000 380000 390000 400000 410000 580000 Discount Rate 6% Discount Factor 1 0.943396 0.889996 0.839619 0.792094 0.747258 =1/(1+disc rate)^year Discounted Flows -1600000 358490.6 347098.6 335847.7 324758.4 433409.7 =total cash flow*discount factor Net Present Value 199605 = sum(discounted flows) As the discount rate is not provided, though unrelated we can assume that the discount rate is equal to bank loan rate

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