x.i5MGT201 FINANCIAL MANAGEMENTSPRING 2009 om;> (1) Calculating Pay-b

QUESTION

x.i5MGT201 FINANCIAL MANAGEMENTSPRING 2009
om;> (1) Calculating Pay-back Period: Machine X Year Cash flows Net Cashflows 0 -700,000 -700,000 1 130,000 -570,000 2 180,000 -390,000 3 170,000 -220,000 4 165,000 -55,000 5 450,000 Payback Period = [Last year with a negative NCF ] Absolute value of NCF in that year / Total cash flow in the following year Payback Period = 4 (55,000 / 450,000) Payback Period = 4.12 years (2) Machine Y Year Cash flows Net Cashflows 0 -400,000 -400,000 1 90,000 -310,000 2 120,000 -190,000 3 100,000 -90,000 4 85,000 -5,000 5 205,000 Payback Period = Last year with a negative NCF Absolute value of NCF in that year / Total Cash flow in the following year = 4 $5,000 / $205,000 = 4 02 = 4.02 years Pay-back Period = 4.02 Years (3) Calculating Net Present Value: Machine X Years Cashflows Present Value Factors at 12% Present Values 0

0) 1 ($700,000) 1 130,000 0.8929 116,077 2 180,000 0.7972 143,496 3 170,000 0.7118 121,006 4 165,000 0.6355 104,857.50 5 450,000 0.5674 255,330 Net Present Value $40,766.50 (4) Machine Y Years Cashflows Present Value Factors at 10% Present Values 0 (400,000) 1 (400,000) 1 90,000 0.8929 80,361 2 120,000 0.7972 95,664 3 100,000 0.7118 71,180 4 85,000 0.6355 54,017.50 5 205,000 0.5674 116,317 Net Present Value 17,539.50 (5) Calculating Internal Rate of Return: > aom;tom” noWrap> 2 Machine x Year Cashflows 0 (700,000) 1 130,000 180,00

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