财务决策FinancialforDecision-makingCHAPTER14

CHAPTER 14

Problem 14.2: Solution

a) Present value = $500 (PVA10,8yr) = $500 X

5.335 = $2,667.50

b) In this problem, as the PVA table is compiled on the basis that the first cash flow occurs in one year’s time, we need to isolate the first cash flow as it is due to occur today. As this cash flow is occurring today, it is already stated in terms of today’s $, therefore there is no need to discount it. The present value of this stream of cash flows will be calculated on the following basis:

Present value = Today’s cash flow + The present value of the annuity to be received at the end of the next seven years

Present value = $500 + $500 (PVA10,7yr) =

$500 + ($500 X 4.868) =

$500 + $2,434 = $2,934

Problem 14.4: Solution

a) Investment A’s accounting rate of return.

Investment A’s average annual profit generated by the

investment =

(￡6,400 + ￡4,900 + ￡3,400 + ￡1,900 + ￡2,400) 5 = ￡3,800

Investment A’s average investment = (￡36,000 + ￡3,000)

2 = ￡19,500

Investment A’s ARR = ￡3,800 ￡19,500 X 100 = 19.5%

Investment B’s accounting rate of return.

Investment B’s average annual profit generated by the

investment =

(￡0 + ￡800 + ￡8,400 + ￡10,400 + ￡5,400) 5 = ￡5,000

Investment B’s average investment = (￡36,000 + ￡7,000)

2 = ￡21,500

Investment B’s ARR = ￡5,000 ￡21,500 X 100 = 23.3%

b) Note that the payback method is based on cash flows and not profit.

Inves tment A’s payback.

￡36,000 is initially invested.

After 1 year, ￡14,000 has been recouped.

After 2 years, ￡26,000 has been recouped (￡14,000 + ￡12,000).

After 3 years, ￡36,000 has been recouped (￡14,000 + ￡12,000 + ￡10,000).

The payback is therefore 3 years.

Investment B’s payback.

￡36,000 is initially invested.

After 1 year, ￡5,000 has been recouped.

After 2 years, ￡12,000 has been recouped (￡5,000 + ￡7,000).

After 3 years, ￡27,000 has been recouped (￡5,000 + ￡7,000 + ￡15,000), at this time there is still ￡9,000 of the ￡36,000 initial investment to be recouped.

As ￡18,000 is recouped in year 4, we will assume that the final ￡9,000 needed was recouped half way through the project’s fourth year.

The payback is therefore 3.5 years.

c) Calcula tion of investment A’s and investment B’s NPV

In the following table “year 0” refers to cash flows occurring today

*: Included in these cash flows is the inflow relating to the estimated salvage of the investment.

Conclusion: Investment B is preferable as it has the higher NPV.

d) The following table summarises the findings made when analysing the two investments using ARR, payback and net present value. As commentaries on investment appraisal techniques concur that NPV should be preferred to ARR and payback, investment B should be selected as the preferred investment. It provides the higher NPV.

Problem 14.6: Solution

a) If 12% results in a positive discount rate, the IRR will be above 12%. If a higher discount rate is tried as part of the trial and error approach of seeking the IRR, the lower discounting factors associated with a higher discount rate (if you’re not sure of this, check the PV and PVA tables and see) will cause the present values of the project’s future cash inflows to have a lower present value. This, in turn, will reduce the NPV.

b) In a single project, accept / reject, situation the NPV and the IRR will not conflict, i.e., a positive NPV signifies that the IRR will be greater than the required rate of return. When ranking investment projects, such as in the choice of the Italian restaurant or the British pub, the highest NPV project will not necessarily be the highest IRR project. In this situation, the Italian restaurant should be selected as it has the higher NPV. Commentaries on investment appraisal techniques concur that NPV should be preferred over the IRR, ARR and payback investment appraisal techniques when ranking more than one investment proposal.

Problem 14.8: Solution

a)

Note that investment in assets comprises the investment in any

fixed asset associated with capital expenditure and also any necessary

investment in working capital (current assets - current liabilities). In this case, the investment proposed will result in a decreased investment in stock held (i.e., a portion of funds locked up in assets will be liquidated).

本文来源：https://www.bwwdw.com/article/d49q.html