Scribd
Upload
19 views

Written - Week 2

Uploaded by

Syed Zeeshan ul Hassan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
19 views

Written - Week 2

Uploaded by

Syed Zeeshan ul Hassan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

In this paper, we examine the viability of WePROMOTE's forthcoming major initiative, which

we anticipate will significantly propel the company's growth by generating sustained cash

inflows over the long term. While my partner and I both provide estimates of the project costs,

we diverge in our projections regarding the magnitude of the resulting cash inflows.

Our analysis aims to ascertain whether the company should commit to or decline this pivotal

undertaking, employing separate calculations of the Net Present Value (NPV) based on our

respective estimations. NPV serves as a vital tool for investment evaluation, representing the

potential change in an investor's wealth attributable to a project while accounting for the time

value of money. This method subtracts the present value of cash outflows from that of cash

inflows (Heisinger & Hoyle, 2012).

The project necessitates an initial investment of $75,000 to cover equipment installation costs,

with a salvage value of $5,000 anticipated at the project's conclusion after seven years. Utilizing

the NPV formula, where C represents expected cash flow per period, R denotes the required rate

of return, and T signifies the duration of income generation, we evaluate the project's NPV.

Notably, the varying cash flow rates over time underscore the necessity of this approach.

While my partner is confident that the firm will receive $15,000 annually over the project's

duration, subsequent calculations demonstrate the NPV of the investment based on his estimates.
Year 0 1 2 3 4 5 6 7

Cash Inflow
-75000 15000 15000 15000 15000 15000 15000 20000
($)

NPV = 14151 + 13350 + 12594 + 11881 + 11209 + 10574 + 13301 - 75000

NPV = 12061

According to my analysis, I anticipate cash inflows of $14,000 during the initial two years,

followed by $15,000 for the subsequent two years, and finally, $17,000 for the remaining years 5

through 7. Based on these projections, I have computed the net present value of the project.

Year 0 1 2 3 4 5 6 7

Cash Inflow ($) -75000 14000 14000 15000 15000 17000 17000 22000

NPV = 13208 + 12460 + 12594 + 11881 + 12703 + 11984 + 14631 - 75000

NPV = 13042

References
Heisinger, K., & Hoyle, J. B. (2012). The Fundamentals of Managerial Accounting and Finance.

Cengage Learning.

You might also like