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Essay / Research Paper Abstract
This 26 page paper answers different accounting questions and give numerous example calculations of NPV and IRR showing how these calculation are carried out and how the information may be used.
Page Count:
26 pages (~225 words per page)
File: TS14_TEaccqu1.rtf
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been earned, this can be calculated in the following way. Year Cash flow Accumulative cash flow 1 12,000 12,000 2 12,000 24,000 3 12,000 36,000 4 12,000 48,000
5 12,000 60,000 This means the break even period will be reached during year 5. b. In calculating the real value of any project the net present value
may be used to make comparisons with other types of investment. This takes the future cash flows and discounts them, to todays value. Using the same project with an expected
term of eight years we also need to consider what the current interest rates are to discount these rates, to give a real value. However, as we have been tools
that there is a required return of 12% then we can use this as the discount factor to indicate if the project will meet this requirement. The discount is calculated
by dividing 1/1.12 for the first year. In each subsequent year the discount factor will be divided by this figure again. Cash flow Discount rate Years present value
Cumulative present value Year 1 12,000 0.893 10714 10714 Year 2 12,000 0.797 9566 20281 Year 3 12,000 0.712 8541 28822 Year 4 12,000 0.636 7626 36448 Year 5 12,000
0.567 6809 43257 Year 6 12,000 0.507 6080 49337 Year 7 12,000 0.452 5428 54765 Year 8 12,000 0.404 4847 59612 Less Initial cost 52,125 NPV 7487 The net
present value with a required return rate of 12% is a loss, and therefore it will meet the 12% required value. c. The IRR is the internal rate
of return. This requires the use of a net present value figure. We know that the IRR must be more than 12%. To calculate this we need to use another
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