Professional Documents
Culture Documents
200,000.00
4,000.00
Cash Inflow:
Proceeds from sale of old equipment
75,000.00
Less: Tax to be paid from gain on sale (outflow)
(75,000-65,000)*25%
2,500.00
Proceeds from sale of other assets
10,000.00
Add: Tax savings (tax benefit)
(10,000-12,000)*25%
500.00
NET INVESTMENT
196,000.00
14,000.00
18,000.00
228,000.00
=
=
=
=
EPS
Amount
600,000.00
200,000.00
1,200,000.00
A
Weight
0.30
0.10
0.60
B
Costs
6%
10%
9%
2,000,000.00
Cost Debt
=
=
=
Cost of PS
=
=
=
=
Cost of CS
and RE
=
=
=
=
150,000.00
60,000.00
20,000.00
40,000.00
120,000.00
30,000.00
9,000.00
21,000.00
21,000.00
40,000.00
61,000.00
40,000.00
90,000.00
10,000.00
80,000.00
8
10,000.00
30,000.00
Dividend Req
PS Market
(5% * 200,000)
5.00
50.00
10%
Dividend per share
MP per share
2.00
40.00
5%
9%
12,000.00
18,000.00
10,000.00
28,000.00
Payback Period
Cost of Investment
Annual Cash Inflow
90,000.00
28,000.00
3.21
=
=
Payback Period
=
=
ARR
Net Income
Investment
18,000.00
90,000.00
20%
=
=
ARR
Net Income
Ave. Investment
18,000.00
(90000 + 0)/2
40%
Cash Flows
Year 2
35,000.00
Year 3
30,000.00
75,000.00
Total Cash Flows after 2 yrs.
105,000.00
Total Cash Flows after 3 yrs.
* If total Cash Flows is 75,000 after two years and 105,000 after three years, then
total Investment amounting to 90,000.00 can be recovered between the 2nd and
3rd year (90,000 is between 75,000 and 105,000).
Thus,
Total Investment
Less: Total Cash Flows of two yrs.
Amount not yet recovered after 2 yrs.
Divided by: CF of 3rd yr.
90,000.00
75,000.00
15,000.00
30,000.00
0.50
Total Investment
PV of Cash Inflows:
Year 1
Year 2
Year 3
Year 4
Total PV of Cash Inflows
Net Present Value
11,000.00
28,000.00
4,000.00
24,000.00
4
Year 0
(28,000.00)
6,000.00
5,000.00
1,000.00
4,000.00
6,000.00
10,000.00
PV Factor
8,000.00
6,400.00
5,120.00
4,100.00
23,620.00
(4,380.00)
0.800
0.640
0.512
0.410
Year 1
10,000.00
Project 1
A. NPV
Cost of Investment
PV of Cash Inflows
(195,000.00)
Net Cash Inflows
PV Factor
100,000.00
2.487
248,700.00
53,700.00
C. Profitability Index
Profitability Index
=
=
Profitability Index
PV of Cash Inflows
Cost of Investment
248,700.00
195,000.00
1.28
=
=
Payback Period
Cost of Investment
Cash Inflows
400,000.00
160,000.00
2.50 years
B. ARR
=
=
ARR
Net Income
Cost of Investment
Cash Inflows + Depreciation
Cost of Investment
240,000.00
400,000.00
60%
(400,000.00)
Annual Cash Inflow
PV Factor
160,000.00
3.433
549,280.00
149,280.00
D. PROFITABILITY INDEX
Profitability Index
PV of Cash Inflows
Profitability Index
=
=
Profitability Index
Cost of Investment
549,280.00
400,000.00
1.373
E. INTERNAL RATE OF RETURN (The rate where Cost of Investment is equal to PV of Cash Inflows)
Let X = PV Factor
400,000.00
=
160,000.00 X
X
=
2.50
If PV Factor = 2.500, then
Interpolation
PV Factor
28%
2.532
?
2.500
29%
2.483
IRR
=
=
IRR
0.032
28%
28%
28.653%
ecause there is a loss on sale of assets, no tax has to be paid. Thus, there is a tax savings on sale of assets.
AxB
WACC
2%
1%
5%
8%
WACC
Dividend Requirement/No. of PS
PS Market Price per share
(5% * 200,000) / (200,000/100 par)
50
4%
4%
Growth rate
Year 2
Year 3
Year 4
10,000.00
10,000.00
10,000.00
3.43308097
PV of Cash Inflows
Cost of Investment
202,040.00
150,000.00
1.35
of Cash Inflows)
0,000.00 X
0.049
0.032
0.049
0.653%
1%
202,040.000
52,040.000