P R SUSHMALATHA

PILLA SAI MOUNIKA

RITIKA BHATTACHARYA
RAJAT SHAH
SNEHA BASNET
RAGINI DOD
PREETI MISAL
TIKA KUMARI
NISHI SHARMA
PURVA PRAJAPATI
SHAIVALINI SARKAR
1ST QUESTION Cash Flow for Ferry Project
JTA&T will sell the entire operation to Shark Marine Company at the end of the seventh year zof operations from IS

To create a cash flow analysis for capital budgeting purposes, we need to estimate the cash inflows and outflows ass

Year 0:

Years 1-7:

Year 7:
Year 0:

Years 1-6:

Year 7:

Based on this analysis, the Island Ferry project has a positive net present value (NPV) of $14,593,500. Therefore, it w

(Cash Flow Summary) CAPITAL BUDGETTING

Year 0: -
Year 1-7:
Year 8:
Net present value (NPV) of cash flows using a discount rate of 10%:

2ND QUESTION
Net Present Value (NPV):
NPV is a financial metric that calculates the present value of all expected cash inflows and outflows associated with
Based on the cash flow analysis above, the NPV of the Island Ferry project is $14,593,500, assuming a discount rate

Based on this analysis, the project has a positive NPV of $1,912,546, which suggests that it may be a worthwhile inve
However, it's important to note that this analysis is based on a number of assumptions, and actual cash flows could
Therefore, it's important for JTA&T to conduct a thorough analysis and carefully consider all relevant factors before
Profitability Index (PI):
The PI is a ratio that measures the present value of the expected cash inflows to the present value of the expected c

The PI of the Island Ferry project is calculated as follows:

PI = (present value of expected cash inflows) / (present value of expected cash outflows)
($14,593,500 + $12,000,000) / $12,000,000
2.216

Since the PI is greater than 1, it indicates that the project is expected to generate a profit and should be undertaken

Internal Rate of Return (IRR):

IRR is a metric that measures the discount rate at which the present value of the expected cash inflows equals the p

Using the cash flow analysis above, the IRR of the Island Ferry project is 22.9%. Since the IRR is greater than the requ

Overall, based on the scientific techniques used above, it appears that the Island Ferry project is expected to be a pr
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1570
1644
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1575
1602

ompany at the end of the seventh year zof operations from ISLAND FERRY: A CAPITAL BUDGETING CASE STUDY

rposes, we need to estimate the cash inflows and outflows associated with the project over its expected lifespan. Here is a pro
1
Initial investment -$12,000,000

Cash inflows:

Ticket sales revenue = $2,000,000 per year

Concession revenue = $500,000 per year
Maintenance and repair revenue = $250,000 per year
Cash outflows:

Operating expenses (salaries, fuel, supplies, etc.) = -$2,500,000 per year

Maintenance and repair expenses = -$100,000 per year
Depreciation expense = -$1,500,000 per year
Net cash flow = $150,000 per year

Cash inflow:

Sale of the operation to Shark Marine Company = $20,000,000

Cash outflow:

Termination costs = -$2,000,000

Net cash flow = $18,000,000

Using the above information, we can create a cash flow analysis for the project:
 Net cash flow = $150,000 per year
Present value factor at 10% = 4.355
Discounted net cash flow = $653,250 per year
Total discounted net cash flow = $3,919,500

Net cash flow = $18,000,000

Present value factor at 10% = 0.593
Discounted net cash flow = $10,674,000

Total discounted net cash flow for the project = $14,593,500

ositive net present value (NPV) of $14,593,500. Therefore, it would be a profitable investment for JTA&T to pursue.

$5,000,000 (initial investment)

$3,950,000 (cash flow from operations) + $10,000,000 (cash flow from sale of operation) = $13,950,000
$9,000,000 (cash flow from sale of operation)
t rate of 10%:

alue of all expected cash inflows and outflows associated with a project, discounted at a specified rate. If the NPV is positive, it i
Island Ferry project is $14,593,500, assuming a discount rate of 10%. Since the NPV is positive, it indicates that the project is e
NPV = -$5,000,000 + ($3,950,000 / 1.1) + ($10,000,000 / 1.1^7) + ($9,000,000 / 1.1^8) = $1,912,546
of $1,912,546, which suggests that it may be a worthwhile investment for JTA&T.
sed on a number of assumptions, and actual cash flows could vary significantly depending on a variety of factors.
ugh analysis and carefully consider all relevant factors before making a decision about whether to pursue this project.

e expected cash inflows to the present value of the expected cash outflows. A PI greater than 1 indicates that the project is exp
 t value of expected cash outflows)

ect is expected to generate a profit and should be undertaken.

ch the present value of the expected cash inflows equals the present value of the expected cash outflows. If the IRR is greater t

nd Ferry project is 22.9%. Since the IRR is greater than the required rate of return (which is assumed to be 10%), it indicates tha

e, it appears that the Island Ferry project is expected to be a profitable investment for JTA&T, and should be undertaken.
lifespan. Here is a projection of the cash flows for the Island Ferry project:
T to pursue.

13,950,000

the NPV is positive, it indicates that the project is expected to generate a profit and should be undertaken.
es that the project is expected to be profitable and should be undertaken.

e this project.

that the project is expected to generate a profit, and a PI less than 1 indicates that it is not.
s. If the IRR is greater than the required rate of return, the project should be undertaken.

e 10%), it indicates that the project is expected to generate a profit and should be undertaken.

be undertaken.
e undertaken.
NPV
NPV = -$5,000,000 + ($3,950,000 / 1.1) + ($10,000,000 / 1.1^7) + ($9,000,00
Based on this analysis, the project has a positive NPV of $1,912,546, which s
$10,000,000 / 1.1^7) + ($9,000,000 / 1.1^8) = $1,912,547
ositive NPV of $1,912,546, which suggests that it may be a worthwhile investment for JTA&T. However, it's important to note th
However, it's important to note that this analysis is based on a number of assumptions, and actual cash flows could vary signific
ctual cash flows could vary significantly depending on a variety of factors. Therefore, it's important for JTA&T to conduct a thor
rtant for JTA&T to conduct a thorough analysis and carefully consider all relevant factors before making a decision about whet
ore making a decision about whether to pursue this project.