Based on the information provided below, compute the Net Present Value of the pr
ID: 2736958 • Letter: B
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. Assume a 10% cost of capital. 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 $1,600,000 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/mortgag
Explanation / Answer
1.) Calculation of NPV Year Cash Flows Present value factor@ 8% Present Value 0 -1600000 1.000 -1600000.00 1 380000 0.909 345454.55 2 390000 0.826 322314.05 3 400000 0.751 300525.92 4 410000 0.683 280035.52 5 420000 0.621 260786.96 5 160000 0.621 99347.41 Net Present Value(NPV) 8464.40 2.) Calculation of Loan EMI Loan Amount = Asset amount - down payment =1600000-160000 =1440000 Equated Mothly Installment = Principal Loan Amount [ r(1+r)n / (1+r)n -1] where: r = annual interest rate / 12 n = number of monthly installments =$1440000 [(0.06/12)*(1+(0.06/12))120 / (1+(0.06/12))120 -1] =$ 15987 Loan Amortisation Schedule Month Opening Loan Balance Principal Interest Total Payment Balance 1 1440000 8787 7200 15987 1431213 2 1431213 8830.94 7156.07 15987.00 1422382.07 3 1422382.07 8875.09 7111.91 15987.00 1413506.98 4 1413506.98 8919.47 7067.53 15987.00 1404587.51 5 1404587.51 8964.06 7022.94 15987.00 1395623.45 6 1395623.45 9008.88 6978.12 15987.00 1386614.56 7 1386614.56 9053.93 6933.07 15987.00 1377560.64 8 1377560.64 9099.20 6887.80 15987.00 1368461.44 9 1368461.44 9144.69 6842.31 15987.00 1359316.75 10 1359316.75 9190.42 6796.58 15987.00 1350126.33 11 1350126.33 9236.37 6750.63 15987.00 1340889.96 12 1340889.96 9282.55 6704.45 15987.00 1331607.41 13 1331607.41 9328.96 6658.04 15987.00 1322278.45 14 1322278.45 9375.61 6611.39 15987.00 1312902.84 15 1312902.84 9422.49 6564.51 15987.00 1303480.36 16 1303480.36 9469.60 6517.40 15987.00 1294010.76 17 1294010.76 9516.95 6470.05 15987.00 1284493.81 18 1284493.81 9564.53 6422.47 15987.00 1274929.28 19 1274929.28 9612.35 6374.65 15987.00 1265316.93 20 1265316.93 9660.42 6326.58 15987.00 1255656.51 21 1255656.51 9708.72 6278.28 15987.00 1245947.80 22 1245947.80 9757.26 6229.74 15987.00 1236190.53 23 1236190.53 9806.05 6180.95 15987.00 1226384.49 24 1226384.49 9855.08 6131.92 15987.00 1216529.41 25 1216529.41 9904.35 6082.65 15987.00 1206625.06 26 1206625.06 9953.87 6033.13 15987.00 1196671.18 27 1196671.18 10003.64 5983.36 15987.00 1186667.54 28 1186667.54 10053.66 5933.34 15987.00 1176613.88 29 1176613.88 10103.93 5883.07 15987.00 1166509.94 30 1166509.94 10154.45 5832.55 15987.00 1156355.49 31 1156355.49 10205.22 5781.78 15987.00 1146150.27 32 1146150.27 10256.25 5730.75 15987.00 1135894.02 33 1135894.02 10307.53 5679.47 15987.00 1125586.49 34 1125586.49 10359.07 5627.93 15987.00 1115227.43 35 1115227.43 10410.86 5576.14 15987.00 1104816.56 36 1104816.56 10462.92 5524.08 15987.00 1094353.65 37 1094353.65 10515.23 5471.77 15987.00 1083838.41 38 1083838.41 10567.81 5419.19 15987.00 1073270.61 39 1073270.61 10620.65 5366.35 15987.00 1062649.96 40 1062649.96 10673.75 5313.25 15987.00 1051976.21 41 1051976.21 10727.12 5259.88 15987.00 1041249.09 42 1041249.09 10780.75 5206.25 15987.00 1030468.34 43 1030468.34 10834.66 5152.34 15987.00 1019633.68 44 1019633.68 10888.83 5098.17 15987.00 1008744.85 45 1008744.85 10943.28 5043.72 15987.00 997801.57 46 997801.57 10997.99 4989.01 15987.00 986803.58 47 986803.58 11052.98 4934.02 15987.00 975750.60 48 975750.60 11108.25 4878.75 15987.00 964642.35 49 964642.35 11163.79 4823.21 15987.00 953478.56 50 953478.56 11219.61 4767.39 15987.00 942258.95 51 942258.95 11275.71 4711.29 15987.00 930983.25 52 930983.25 11332.08 4654.92 15987.00 919651.16 53 919651.16 11388.74 4598.26 15987.00 908262.42 54 908262.42 11445.69 4541.31 15987.00 896816.73 55 896816.73 11502.92 4484.08 15987.00 885313.82 56 885313.82 11560.43 4426.57 15987.00 873753.38 57 873753.38 11618.23 4368.77 15987.00 862135.15 58 862135.15 11676.32 4310.68 15987.00 850458.83 59 850458.83 11734.71 4252.29 15987.00 838724.12 60 838724.12 11793.38 4193.62 15987.00 826930.74 61 826930.74 11852.35 4134.65 15987.00 815078.40 62 815078.40 11911.61 4075.39 15987.00 803166.79 63 803166.79 11971.17 4015.83 15987.00 791195.62 64 791195.62 12031.02 3955.98 15987.00 779164.60 65 779164.60 12091.18 3895.82 15987.00 767073.42 66 767073.42 12151.63 3835.37 15987.00 754921.79 67 754921.79 12212.39 3774.61 15987.00 742709.40 68 742709.40 12273.45 3713.55 15987.00 730435.95 69 730435.95 12334.82 3652.18 15987.00 718101.13 70 718101.13 12396.49 3590.51 15987.00 705704.63 71 705704.63 12458.48 3528.52 15987.00 693246.15 72 693246.15 12520.77 3466.23 15987.00 680725.38 73 680725.38 12583.37 3403.63 15987.00 668142.01 74 668142.01 12646.29 3340.71 15987.00 655495.72 75 655495.72 12709.52 3277.48 15987.00 642786.20 76 642786.20 12773.07 3213.93 15987.00 630013.13 77 630013.13 12836.93 3150.07 15987.00 617176.20 78 617176.20 12901.12 3085.88 15987.00 604275.08 79 604275.08 12965.62 3021.38 15987.00 591309.45 80 591309.45 13030.45 2956.55 15987.00 578279.00 81 578279.00 13095.60 2891.40 15987.00 565183.40 82 565183.40 13161.08 2825.92 15987.00 552022.31 83 552022.31 13226.89 2760.11 15987.00 538795.42 84 538795.42 13293.02 2693.98 15987.00 525502.40 85 525502.40 13359.49 2627.51 15987.00 512142.91 86 512142.91 13426.29 2560.71 15987.00 498716.63 87 498716.63 13493.42 2493.58 15987.00 485223.21 88 485223.21 13560.88 2426.12 15987.00 471662.33 89 471662.33 13628.69 2358.31 15987.00 458033.64 90 458033.64 13696.83 2290.17 15987.00 444336.81 91 444336.81 13765.32 2221.68 15987.00 430571.49 92 430571.49 13834.14 2152.86 15987.00 416737.35 93 416737.35 13903.31 2083.69 15987.00 402834.04 94 402834.04 13972.83 2014.17 15987.00 388861.21 95 388861.21 14042.69 1944.31 15987.00 374818.51 96 374818.51 14112.91 1874.09 15987.00 360705.60 97 360705.60 14183.47 1803.53 15987.00 346522.13 98 346522.13 14254.39 1732.61 15987.00 332267.74 99 332267.74 14325.66 1661.34 15987.00 317942.08 100 317942.08 14397.29 1589.71 15987.00 303544.79 101 303544.79 14469.28 1517.72 15987.00 289075.52 102 289075.52 14541.62 1445.38 15987.00 274533.89 103 274533.89 14614.33 1372.67 15987.00 259919.56 104 259919.56 14687.40 1299.60 15987.00 245232.16 105 245232.16 14760.84 1226.16 15987.00 230471.32 106 230471.32 14834.64 1152.36 15987.00 215636.68 107 215636.68 14908.82 1078.18 15987.00 200727.86 108 200727.86 14983.36 1003.64 15987.00 185744.50 109 185744.50 15058.28 928.72 15987.00 170686.22 110 170686.22 15133.57 853.43 15987.00 155552.65 111 155552.65 15209.24 777.76 15987.00 140343.42 112 140343.42 15285.28 701.72 15987.00 125058.13 113 125058.13 15361.71 625.29 15987.00 109696.43 114 109696.43 15438.52 548.48 15987.00 94257.91 115 94257.91 15515.71 471.29 15987.00 78742.20 116 78742.20 15593.29 393.71 15987.00 63148.91 117 63148.91 15671.26 315.74 15987.00 47477.65 118 47477.65 15749.61 237.39 15987.00 31728.04 119 31728.04 15828.36 158.64 15987.00 15899.68 120 15899.68 15899.68 87.32 15987.00 0.00
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