- Things that I liked in this course – Nad is a very Knowledgeable teacher, and is very keen to teach and make the students understand the subject. The sense of humour Nad carries with him all the time is a great quality. I would aslo like to say that the E reflections are a great idea, since it gives student to learn progressively and also to score from the learning.
- Things that I disliked in this course – Considering the fact that a student would join this course with a little or no knowledge in Accounting, I think the course should be designed a little more easier.
- Suggestions – Cant think of any
- Financial Management – Evaluation of an Investment Proposal (10 marks)
Yang Corporation is reviewing an investment proposal. The initial cost is $52,500. The cash flows for each year and the net profit for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. There will be no salvage value at the end of the investment’s life.
|Year||Annual net cash flows||Annual net profit|
Yang uses a 12 per cent required rate of return for new investment proposals.
- Calculate the project’s payback period.
-52,500 + 20,000 + 17500 +15000 = 0. By 3rd year the amount of initial investment is covered. Thus the payback period for initial investment of $52,500 is 3 years.
2. Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment.
ARR= Average Profit/ Average investment *100%
The Average profit= $22,500/5= 4,500 and the Average investment $52,500
4,500 * 100% = 8.571
Thus ARR= 8.5%
3. Calculate the proposal’s net present value.
The required rate of return being 12%
NPV= – Initial Outlay + Present Value of all the cash flows
PV= Cashflow * 1/ (1+r)t
NPV= -52,500 + 20,000 + 17,500 +15000 + 12,500 + 10,000
(1.12)1 (1.12)2 (1.12)3 (1.12)4 (1.12)5
= -52,500 + 17857.14 + 13950.89 + 10676.91+ 7944.073 + 5674.40
Thus as the NPV is Positive $3603.41, the project should be accepted.