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Essay / Research Paper Abstract
This 9 page paper assesses two potential projects, calculating cash flow and a range of net present values for different discount rates. Using the data for the two potential projects the risk lines for different discount rates are plotted on a graph and compared, and the project choices assessed. The bibliography cites 2 sources.
Page Count:
9 pages (~225 words per page)
File: TS14_TEcaseNPV.rtf
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Unformatted sample text from the term paper:
are incurred over 5 quarters and the profit realised in the sixth quarter. The second project is the development of two sites with the development overlapping, and the first sale
occurring in the fourth quarter and the second sale occurring in the sixth quarter. The first stage of assessing the developments is to calculate the costs and the revenues and
then use these to calculate the net present value at a range of discount factors. We will look at project 1 first. The first consideration in the calculation is
the net revenue from the sale of the flats. This is shown in figure 1 Figure 1; Revenue from project 1 Income Sale income 1,600,000 Less sales fees at
3% 48000 Net income 1,552,000 The next stage is to calculate the costs of the project. There is the initial investment which is given as 800,000, after this we
need to look at the costs incurred. There are two types of costs, those that are part of the project and the overhead costs which remain the same every month
at 4500, the remaining costs are given as a total of 150,000 and we are told how they will occur across the quarters. We can calculate these and then include
the revenue in the last quartet to get the net revenue for each of the quarters. Figure 2; Net income per quarter for project 1 Project costs and
Income overheads Net income Quarter 1 (10%) -15,000 4,500 -19,500 Quarter 2 (30%) -45,000 4,500 -49,500 Quarter 3 (30%) -45,000 4,500 -49,500 Quarter 4 (20%) -30,000 4,500 -34,500 Quarter 5
-15,000 4,500 -19,500 Quarter 61 1,552,000 4,500 1,547,500 With these figures it is now possible to undertake net present value calculation with different discount rates. The rates chosen will be
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