FNT1 Task 2
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 cash flow
*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
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
Discount rate is at 12%
The entrepreneur should invest because the
product will repay capital cost incurred.
ARR VS: IRR
Takes percentage of profit
Based on profits
Not time sensitive
Does not factor in percent
Based on current values of
Adjusted for time.
5 years 3 months
return on investment
to recover money.
Focuses on short
overlooking a good
Time value of money
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
WACC is a measure of the cost of each unit of
money related to time.
●WWCC for this product is 12%.
●NPV adjust cash...