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Essay / Research Paper Abstract
This 11 page paper answers questions set by the student. The first shows the student how to use Net Present Value (NPV), Internal Rate of Return (IRR) and Payback to access the potential purchase of some equipotent that will creates operating cost savings. The paper then considers the advantages and disadvantages of using the NPV, IRR and Modified Internal Rate or Return (MIRR) to assess the return of as project. The paper ends with some consideration of when NPV is a good tool to use looking at the purchase of equipment for a car factory, a patent on a new drug, an aircraft or a start up shop. The bibliography cites 7 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TENPVMIRR.rtf
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Unformatted sample text from the term paper:
future cash flows and then discounts them to account of either inflation or the required rate of return. In the case study
we are given a saving that investment will create, but we are not given the relevant income and expenditure figures. However, this is not a problem as if there is
a saving of 100,000 and not other costs or incomes change then this may be seen as the return on the investment. This means we will make the assumption than
as a saving that this is the return that the investment will create. We are told there is a required investment return rate of 8% this means we need
to use 8% as the discount rate. To calculate the NPV we need to take the net income (the savings) and discount them by the 8% for each year, then
add them tighter along with any scrape value, also discounted, and then deduct the starting cost. The discount value is calculated for the first year dividing 1 by the
discount amount (8%), and then each subsequent year carrying the previous year forward and then dividing that by the discount amount (8%). The calculation will look like this however,
although we are told there are savings, which we will treat as revenues, of 100,000 a year, and a cost of 400,000 in the first year, we also have a
cash value for scarping the old machinery, which is also income, so is added onto the first year. NPV Year Profit discount rate discounted cash flow Accumulative total Year
1 110,000 0.92592593 101,852 101,852 Year 2 100,000 0.85733882 85,734 187,586 Year 3 100,000 0.79383224 79,383 266,969 Year 4 100,000 0.73502985 73,503 340,472 Year 5 100,000 0.6805832 68,058 408,530 End
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