- Submitted By: Ashlie-Sisler
- Date Submitted: 08/19/2016 11:36 AM
- Category: Miscellaneous
- Words: 427
- Page: 2

FNT1 Task 2

Brandon Sisler

Net cash flow without depreciation

For year two

Expected annual sales $3,200,000

Expected annual cost $2,400,000

Depreciation expense $0

Income before taxes $600,000

Income at marginal rate $168,000

Net Income

$432,000

Net cash flow

$432,000

*Depreciation affects cash flow by minimizing the

sum of money a company pays in taxes.

After calculating year two without deprecation we

come up with an annual cash flow of $432,000.

●

When calculations with depreciation are included

we see an annual cash flow of $534,900.

●

That leaves us with a difference of $102,900

●

Net Preset Value

$70,315

Based on the results of NPV, I recommend that

Entrepreneur D invest in the product.

●

Being that the NPV is at a positive number

investing in the project safe investment.

●

This means that cash inflow outweighs cash

outflow on a present value basis.

●

Internal Rate of Return

12.570%

Discount rate is at 12%

●

The entrepreneur should invest because the

product will repay capital cost incurred.

●

ARR VS: IRR

●

ARR

IRR

19.76%

12.570

Takes percentage of profit

into account.

●

Based on profits

●

Not time sensitive

●

●

●

Does not factor in percent

of profit

Based on current values of

cash inflows

Adjusted for time.

PayBack Period

5 years 3 months

Advantages

●

●

●

Very simple

Make quick

evaluation

Calculate fastest

return on investment

to recover money.

Disadvantage

●

●

●

Focuses on short

term profitability

Possibility of

overlooking a good

investment

Time value of money

is ignored

PayBack

He wanted to payback his investment in eight

years and he will hit that in five years three

months. This means I would recommend

producing this product.

Weighted average cost of capital

and npv

WACC is a measure of the cost of each unit of

money related to time.

●WWCC for this product is 12%.

●NPV adjust cash...