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Essay / Research Paper Abstract
This 5 page paper answers questions form the student showing how project costs can be compared using net present value (NPV) and internal rate of return (IRR). The paper shows the student how to carry out these calculation with some examples, and how they can then be used to make a decision. The bibliography cites 6 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEquest6.rtf
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Unformatted sample text from the term paper:
on the actual costs of the project, with the assumption that they will product the same income. This is the case in the situation provided by the student.
Question 1 In calculating the cost of the project in todays terms; the net present value, the cash flows need to be calculated and then discounted to allow for the
cost of capital, which is given as 12%. The initial cost then needs to be added. This is a current cost and is therefore not discounted. Where there is a
scrape value this is deducted form the cash flow in the last year. In reality the running costs would be paid and scrape value retrieved only at the end
of the last year. However, it is within the same year, and therefore needs to be included. If the scrape value would not be released until the next year this
would then need to be added back with the appropriate discounting. For System A Cash flow Discount rate Years present value Cumulative present value Year 1 140,000 0.893
125000 125000 Year 2 140,000 0.797 111607 236607 Year 3 140,000 0.712 99649 336256 Year 4 140,000 0.636 88973 425229 Year 5 140,000 0.567 79440 504669 Year 6 140,000 0.507
70928 575597 Year 7 140,000 0.452 63329 638926 Year 8 140,000 0.404 56544 695470 Year 9 140,000 0.361 50485 745955 Year 10 126,000 0.322 40569 786524
5070232 Plus Initial cost 70,000 NPV 5140232 This has a net present value for the cost of the project of 5,140,232 Cash flow
Discount rate Years present value Cumulative present value Year 1 120,000 0.893 107143 107143 Year 2 120,000 0.797 95663 202806 Year 3 120,000 0.712 85414 288220 Year 4 120,000 0.636
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