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(Financial Figures in 000) : ARR Calculation: Invest Limited
(Financial Figures in 000) : ARR Calculation: Invest Limited
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PAYBACK Calculation: Invest Limited
(financial figures in £000)
All in £000
Item Year 0 1 2 3 4
Investment -100
Net cash flows 36 60 42 10
Annual cash flows -100 36 60 42 10
Cumulative -100 -64 -4
Payback is in Year 2
64 60
3.07 years
Payback is in 3rd Year
2 + 4/42 = 2.09 years
MAD L5 2
NPV Calculation: Invest Limited
(financial figures in £000)
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Exercise 6.1: Mylo Limited in text book
Payback and NPV - both cash-based
Half of you do Project , and half do Project
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A & M QUESTION 8.1 MYLO LIMITED - CALCULATING PAYBACK, and NPV
DISCOUNTING AT COST OF CAPITAL OF 10% ALL FIGURES IN £000s
NOTE THAT THE PROFIT NEEDS TO BE CONVERTED TO 0 1 2 3
CASH BY ADDING BACK THE NON CASH ITEM DEPRECIATION
NET PROFIT/(LOSS) 29 -1 2
ADD BACK DEPRECIATION 31 31 31
CASH FLOWS (INCLUDING INVESTMENT IN PROJ ECT AT TIME ZERO) -100
RESIDUAL VALUE AT END OF PROJ ECT 7
INCREMENTAL CASH FLOWS -100 60 30 40
CUMULATIVE CASH SHORTFALL AT END OF EACH YEAR -100 -40 -10 30
PAYBACK IS in 3RD YEAR - 2.25 YRS (BEING 1 YR x 10/40)
DISCOUNT FACTOR @ 10% APPLIED TO CASH FLOWS 1 0.909 0.826 0.751
PRESENT VALUES -100.00 54.54 24.78 30.04
NPV 9.36
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IRR Calculation
FOR INTERNAL RATE OF RETURN TRY USING 25%
Annual cash flows -100 36 60 42 10
Discount factor 20% 1 0.800 0.640 0.512 0.410
PV -100 28.8 38.4 21.504 4.1
NPV -7.196
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Exercise 6.1: Mylo Limited IRR
IRR PROJ ECT 1 USING 20% TO CALCULATE NPV, IN £000 0 1 2 3
INCREMENTAL CASH FLOWS -100 60 30 40
DISCOUNT FACTOR @ 20% 1 0.833 0.694 0.539
PRESENT VALUES -100 49.98 20.82 21.56
NPV -7.64
IRR INTERPOLATION
CALCULATION
SPREAD 9.36 +7.64 0.551 10% SPREAD
IRR% PROJ ECT 1 = 5.51 15.51%
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More Work! Exercise 6.2 Page 230
Exercise6.2
ArkwrightMills
0 1 2 3 4 5 6
£m £m £m £m £m £m £m
Investment -1
Operating profit 0.2 0.3 0.3 0.3 0.3
Add back depreciation assume straight line 0.2 0.2 0.2 0.2 0.2
Corporation tax @ 20% of profits -0.04 -0.06 -0.06 -0.06 -0.06
Working capital -0.6 0.6
Cashflows -1.6 0.4 0.46 0.44 0.44 1.04 -0.06
Cumulative cash flows -1.6 -1.2 -0.74 -0.3 0.14 1.18
Payback 3.87 years
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1. C. George (Controls) Limited
3
1 1
1 1
2 2
C. George (Controls) Limited
4 CFO
1
C. George (Controls) Limited
0,1,2, 3 or 4 marks