rizona Company is considering an investment in new machinery. The annual incremental profits/(losses) relating to the investment are estimated to be: $’000 Year 1 (11) Year 2 3 Year 3 34 Year 4 47 Year 5 8 Investment at the start of the project would be $175,000. The investment sum, assuming nil disposal value after five years, would be written off using the straight-line method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Required: A Compute the net cash flow for each of the five years. Calculate the net present value (NPV) of the investment at a discount rate of 10% per annum (the company’s required rate of return)
Arizona Company is considering an investment in new machinery. The annual incremental
$’000
Year 1 (11)
Year 2 3
Year 3 34
Year 4 47
Year 5 8
Investment at the start of the project would be $175,000. The investment sum, assuming nil disposal value after five years, would be written off using the straight-line method. The
Required:
A Compute the net cash flow for each of the five years.
- Calculate the
net present value (NPV) of the investment at a discount rate of 10% per annum (the company’s required rate of return)
Discount factors at 10% are:
Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683
Year 5 0.621
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