Exercise 31 Net Present Value Method and Annuity Method

The initial investment outlay of an investment project is €100,000. Use the following data:

Economic life: 5 years Liquidation value: €10,000

t

1

2

3

4

5

CIFt (€)

45,000

55,000

50,000

45,000

40,000

COFt (€)

15,000

15,000

20,000

25,000

30,000

Tab. 3-6: Cash inflows and outflows of the investment project Where:

CIFt = Current cash inflows in t COFt = Current cash outflows in t

The uniform discount rate is 5%. Is it a good idea to acquire this item? Ascertain:

a) The net present value.

b) Using a financing and redemption plan, the value that would arise if the item were to be wholly financed by internal funds.

c) The annuity.

Present Power

Present Power

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