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Essay / Research Paper Abstract
This 4 page paper is based on a case study supplied by the student. An investment needs to be assessed using the net present value method at two different rates as well as reviewing other assessment approaches that may be used. The bibliography cites 4 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEhotnpv.doc
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Unformatted sample text from the term paper:
to take the future net cash flows of an investment and then discount them into todays value. It is known that money received at some point in the future does
not have the same value as money today due to the time value cost of money. By discounting the cash flow for each year, and then adding them together and
deducting the initial investment a total value for the investment can be assessed with a single figure. This is a useful approach as it allows different types of investment, and
investments over different periods to be compared, with a single figure. To perform a net present value calculation it is necessary to assess the net cash flow that will be
received as well as the total investment and determine the discount rate that will be applied. The first stage is to assess the net cash flow, using the figures
for the revenue and the costs that are given in the case study, shown in table 1 Figure 1 Net cash flow per annum Monthly (c) Annual (c x
12) Revenue (a) 32,000 384,000 Costs (b) 17,000 204,000 Net Revenue (a - b) 15,000 180,000 This shows us that the annual net revenue is 180,000 per annum. Next we
need to calculate the set up costs, these are the costs all based on the costs required to set up the restaurant. Figure 2 Initial Investment Shop purchase 690,000
Renovation 65,000 Structural alteration 45,000 Total 800,000 The next consideration is the discount level. This is traditionally applied as the cost of capital for the firm. As this is
the cost in terms of expense. In this case we are told that the loan may be 4%, so we will use this as the discount rate. The discount rate
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