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    Raphael Lorete
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    This document contains information about two problems. Problem 1 presents a cash flow analysis of a new product over 5 years, calculating a positive net present value of $1450. Problem 2 calculates the payback period of a project that will save $30,000 in labor costs annually over 10 years, determining the internal rate of return is 12%.

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    This document contains information about two problems. Problem 1 presents a cash flow analysis of a new product over 5 years, calculating a positive net present value of $1450. Problem 2 calculates the payback period of a project that will save $30,000 in labor costs annually over 10 years, determining the internal rate of return is 12%.

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    © All Rights Reserved
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    18 views1 page

    $RC2KGBT PDF

    Uploaded by

    Raphael Lorete
    This document contains information about two problems. Problem 1 presents a cash flow analysis of a new product over 5 years, calculating a positive net present value of $1450. Problem 2 calculates the payback period of a project that will save $30,000 in labor costs annually over 10 years, determining the internal rate of return is 12%.

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    © All Rights Reserved
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    of 1

    Russell Joseph L.

    Lorete I
    BSA 3A

    Problem 1
    Sales evenue 200000.00
    Less: Cost of parts sold 125000.00
    Gross Margin 75000.00
    Less: Out of pocket costs 35000.00
    Annual Net Cash Flow 40000.00

    Years Cash Flows 20% Factor PV


    Investment in Equipment now -60000.00 1.00 -60000.00
    Working Capital Needed now -100000.00 1.00 -100000.00
    Annual Net Cash Flow 1 to 5 40000.00 2.99 119640.00
    Overhaul of Equipment 4.00 -5000.00 0.48 -2410.00
    Salvage Value 5.00 10000.00 0.40 4020.00
    Working Capital Released 5.00 100000.00 0.40 40200.00
    Net Present Value 1450.00

    Since the NPV has a positive I will recommend that the new product will be introduced.

    Problem 2
    Cost 169500.00
    Divided by Labor Savings 30000.00
    PV 5.65

    1-(1+r)^-t
    PV=
    r Trial and error
    5.65r= 1-(1+r)^-10
    1-(1+r)^-10
    5.65=
    r 5.65 x 12% = 1-(1+ 12%)^-10

    r= 0.12 0.678= 0.68

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