Making the choice to invest today or to postpone that investment to a future date is a choice between mutually exclusive project
1 answer:
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Answer:
NPV: $180,285.49
IRR: 21.336%
simple rate of return: 72.13%
Explanation:
6,100,000 investment
contribution margin 3,000,000
fixed expense: <u> 900,000 </u>
EBITA 2,100,000
We will calculate the NPV without the depreciation, as the depreciation is the distribution of the investment cost over the project life.
If we include the depreciation we will be counting the investment amount twice. Entirely at Time 0 and then subtracting on each cash inflow.
We will calculate the NPV at 20% as is the company's discount rate. Even if the current division returns are in 24% as the company accepts project which yields 20%.
C 2,100,000
time 5 years
rate 20% = 20/100 = 0.2
PV $6,280,285.49
NPV = PV of cash inflow - investment
6,280,285.49 - 6,100,000 = 180,285.49
<u>the IRR:</u>
The internal rate of return is the rate at which the NPV of a priject is zero.
We calculate this using excel formula IRR
or a financial calculator
it could also be done with trial and error using the PV tables.
<u>I will explain you in Excel</u>
FIrst, you write the inflow and outflow per year:
-6,100,000
2,100,000
2,100,000
2,100,000
2,100,000
2,100,000
then we write on another cell:
=IRR(
then, select the cells
and press enter
21.336%
<u>the simple rate of return:</u>
(total return - investment) / investment
(2,100,000 x 5 - 6,100,000) / 6,100,000 =
4,400,000 / 6,100,000 = 0.721311475 = 72.13%
Answer:20,5369%
Explanation:We know APR is the Annual Percentage Rate that is paid over a loan. If we are to pay during 78 months at most $510 each month, then we could pay in total 510*78=$39780 in the course of the six years and a half that constitute the 78 months. This means that yearly we can pay in interest $39780/6,5=$6120 each year, this represents the interest over the loaned money, i.e., the $29800. Then the APR is
annualy or 1,71141% monthly and it is the highest APR you could afford, 20.5369%