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The net present values of a project have been calculated as follows:
Which of the following methods of investment appraisal is based on profits?
Sensitivity analysis indicates
Project A has an initial outlay of $180 000 and an increase in working capital of $15 000. Its profits over its four-year life are $14 000, $10 000, $20 000 and $14 000. Using average annual profit divided by average investment (assuming a nil residual value), calculate the accounting rate of return (ARR), correct to two decimal places.
Project B has an initial outlay of $160 000 and an increase in working capital of $6 000. Its profits over its four-year life are $13 000, $9 800, $17 000 and $16 200. Using average annual profit divided by average investment (assuming a nil residual value), calculate the accounting rate of return (ARR), correct to two decimal places.
For Project A, the total present value of the future cash inflows discounted at Mbire Limited's 10% cost of capital is $198 418. The initial investment (an outlay of $180 000 plus an increase in working capital of $15 000) is $195 000. What is the net present value (NPV) of Project A?
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