Based on the information provided in the proforma statement attached below, comp
ID: 2740448 • Letter: B
Question
Based on the information provided in the proforma statement attached below, compute the Net Present Value, the Internal Rate of Return, the Cash Payback and the Accounting Rate of Return (CO 6). (Hint: Depreciation is not a cash item).
Acme International Proforma Income Statements Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Sales revenue $ 580,000.00 $ 609,000.00 $ 639,400.00 $ 671,000.00 $ 745,500.00 $ 782,000.00 Less: Operating expenses $ 320,000.00 $ 336,000.00 $ 352,800.00 $ 370,400.00 $ 389,000.00 $ 408,500.00 Less: Depreciation expense $ 60,000.00 $ 60,000.00 $ 60,000.00 $ 60,000.00 $ 60,000.00 $ 60,000.00 Net income $ 200,000.00 $ 213,000.00 $ 226,600.00 $ 240,600.00 $ 296,500.00 $ 313,500.00 Initial cost of the investment: $ 600,000.00 Discount rate: 10%Explanation / Answer
Computation of IRR(by using excell function)
Cash payback period refers to period which will take to recover the initial cash outflow.
Accounting rate of retrun =Average return during the period /Average Investment
Average return =(260,000+291,000+286,600+300,600+356,500+373,500)/6 =$ 311,366.67
Average Investment =(600,000+600000)/2 =600,000
Accounting rate of retrun =311,366.67/600,000*100=51.89%
Computation of Net Present Value Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 total Net income 200,000 231,000 226,600 240,600 296,500 313,500 Add:Depreciation 60,000 60,000 60,000 60,000 60,000 60,000 Free Cashflow 260,000 291,000 286,600 300,600 356,500 373,500 PVF@10% 0.909 0.826 0.751 0.683 0.621 0.564 Present value 236,363.64 240,495.87 215,326.82 205,313.84 221,358.45 210,831.01 1,329,689.64Related Questions
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