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.
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When calculations with depreciation are included
we see an annual cash flow of $534,900.
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That leaves us with a difference of $102,900
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Net Preset Value
$70,315
Based on the results of NPV, I recommend that
Entrepreneur D invest in the product.
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Being that the NPV is at a positive number
investing in the project safe investment.
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This means that cash inflow outweighs cash
outflow on a present value basis.
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Internal Rate of Return
12.570%
Discount rate is at 12%
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The entrepreneur should invest because the
product will repay capital cost incurred.
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ARR VS: IRR
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ARR
IRR
19.76%
12.570
Takes percentage of profit
into account.
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Based on profits
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Not time sensitive
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Does not factor in percent
of profit
Based on current values of
cash inflows
Adjusted for time.
PayBack Period
5 years 3 months
Advantages
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Very simple
Make quick
evaluation
Calculate fastest
return on investment
to recover money.
Disadvantage
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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...