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Written Assignment Unit 3

The document discusses calculating the net present value (NPV) of a potential investment for a company called WePROMOTE. [1] NPV can be calculated using a formula that discounts future cash flows to their present value using a discount rate. [2] A positive NPV means the investment will earn a return higher than the company's cost of capital and should be pursued, while a negative NPV means the company will lose money on the investment. [3] Calculations in an attached file determine that the NPV for WePROMOTE's potential investment is positive, so the company would earn a profit by pursuing this project.

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41 views

Written Assignment Unit 3

The document discusses calculating the net present value (NPV) of a potential investment for a company called WePROMOTE. [1] NPV can be calculated using a formula that discounts future cash flows to their present value using a discount rate. [2] A positive NPV means the investment will earn a return higher than the company's cost of capital and should be pursued, while a negative NPV means the company will lose money on the investment. [3] Calculations in an attached file determine that the NPV for WePROMOTE's potential investment is positive, so the company would earn a profit by pursuing this project.

Uploaded by

Sidzz Abbasi
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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UNIVERSITY OF THE PEOPLE

BUS 5111:

Financial management

Written Assignment Unit 3

Mr. Solomon

28th Nov 2021


During the current week's task a more inside and out capital planning examination is completed for
information from the organization WePROMOTE. At the point when organizations need to settle on
whether it will merit seeking after another venture they can decide the Net Present Value (NPV) for
instance. Here floods of income are limited back to their current worth (Hofstrand, n.d.). This worth
relies upon elements, for example, the rebate rate, the hour of the income and the sum ("Net Present
Value", n.d.).

The NPV can be determined by utilizing the accompanying equation: NPV = (Cash Flows)/(1+r) ^ t. In this
equation incomes allude to the incomes inside a specific time-frame, r = markdown rate and t = time
span (NPV, 2020). In Microsoft Excel the accompanying recipe can likewise be utilized to ascertain the
NPV: =NPV(discount rate, scope of qualities) + venture. At the point when a NPV is positive, this
demonstrates that the income (cash inflow) is more prominent than the expense (cash surge) and the
organization can create a gain from an expected venture.

Despite what might be expected, negative NPVs imply that the organization would lose cash and ought
not seek after the venture. At the point when organizations need to conclude whether or not they ought
to put resources into another task, the point is to pick the most elevated NPV. In a capital planning
examination, things, for example, incomes and costs impact the total compensation and the charges
that an organization pays. At the point when the incomes and costs are likewise known, the after-charge
income still up in the air prior to working out the NPV.

The accompanying recipe can be utilized to compute the after charge income: net income (incomes
costs) x (1 – charge rate) ("Effect of Income Taxes on Capital Budgeting", n.d. ; Heisinger and Hoyle,
2012). For this contextual investigation the expense rate is set at 30%. The yearly after-charge income,
yearly devaluation charge investment funds, absolute money in(out) and the NPV illustrated in table 1.

Attached file has the calculations.

The hardware will be devalued on a straight-line reason for a very long time after which there will be no
rescue esteem. Devaluation isn't a money outpouring, yet it brings about the organization covering less
duties. Charge investment funds from deterioration (devaluation charge safeguard) can be determined
with the accompanying equation: deterioration cost X duty rate. The expense of the hardware is
$70,000 with a valuable existence of 5 years. The yearly deterioration cost is $70,000 : 5 = $14,000.
Yearly deterioration charge investment funds is then $14,000 x 0.3 = $4,200. To decide the all-out
income, the yearly after-charge income and devaluation charge reserve funds are summed up.
Thereafter the computation of the NPV can be completed.

The determined NPV for WePROMOTE is positive (NPV > 0) which implies that the organization would
create a gain if they somehow managed to seek after this venture. The speculation will have a return
higher than the organization's expected markdown pace of 6%.
References:

The Effect of Income Taxes on Capital Budgeting Decisions. (n.d.). Saylordotorg. Retrieved on 27 April,
2021 from https://saylordotorg.github.io/text_managerial-accounting/s12-07-the-effect-of-income-
taxes-on-.html#:~:text=The%20NPV%20is%20%2450%2C112%20as%20shown%20in%20the
%20following%20figure.&text=Initial%20investment%20purchase%20price%20does,not%20adjusted
%20for%20income%20taxes.&text=Amount%20equals%20cash%20revenue%20before,
%C3%97%20(1%20%E2%80%93%200.30).

Capital Budgeting: Net Present Value. (n.d.). Retrieved on 21 April, 2021 from
https://courses.lumenlearning.com/boundless-finance/chapter/net-present-value/#:~:text=If%20NPV
%20is%20positive%2C%20that,the%20investor%20makes%20a%20profit.&text=In%20theory%2C%20an
%20investor%20should,the%20investment%20is%20making%20money.

Heisinger,K. & Hoyle, J.B. (2012). Accounting for Managers. Saylor Foundation.

Hofstrand, D. (n.d.). Capital Budgeting Basics. Retrieved on 10 October, 2020 from


https://www.extension.iastate.edu/agdm/wholefarm/html/c5-240.html

NPV (Net Present Value) – Formula, Meaning & Calculator. (2020). Retrieved on 14 October, 2020 from
https://cleartax.in/s/npv-net-present-value#:~:text=It%20is%20calculated%20by%20taking,flows%20at
%20a%20specified%20rate.

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