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Ilustration 2

The document contains illustrations of financial appraisal techniques including: 1) Calculating net present value (NPV) and internal rate of return (IRR) for projects. 2) Finding the discounted payback period of 2.33 years for a project. 3) Calculating tax savings and profits on capital allowances for a project over 4 years. 4) Showing working capital cash flows required at the start and end of years for a project.

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45 views5 pages

Ilustration 2

The document contains illustrations of financial appraisal techniques including: 1) Calculating net present value (NPV) and internal rate of return (IRR) for projects. 2) Finding the discounted payback period of 2.33 years for a project. 3) Calculating tax savings and profits on capital allowances for a project over 4 years. 4) Showing working capital cash flows required at the start and end of years for a project.

Uploaded by

Kiran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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ILUSTRATION 2 Find NPV?

$'m $'m $'m


Years 0 1 2
Net Cashflows -100 50 40
NPV 30.55

ILUSTRATION 4 Find IRR? NPV at 10% 34,000$

IRR 24% 24%>10%

ILUSTRATION 5 Find Discounted Payback period?

Years Cashflows Cumulative Cashflows Payback period


0 -100 -100
1 50 -50
2 40 -10 2.33 years
3 30 20
4 25 45
5 20 65
Example
TAX
Initial Investment 2000
C.A 25% Reducing
Useful life 4 years
Tax rate 30% in arrears
Scrap Value 500

Years 0 1 2
OCF 600 700
Tax on OCF -180
W-1 Tax savings on CA 150

Net Cashflows 600 670

W-1 Tax savings on CA


Years 0 1 2
O/B 2000 1500
CA OR BA 500 375

Tax savings 150


Years 0 1 2
OCF 600 700
W-1 Tax -30
Net cashflows 600 670

W-1 Tax Profits on CA


Years 0 1 2
O/B 2000 1500
CA OR BA 500 375

Tax profits 100 325

Tax -30

ILUSTRATION 5 Working Capital Cashflows

Years 0 1 2
Required at start 500 700
Cashflows -500 -200 -300
Decision
accepting the project the shareholder wealth
$'m $'m $'m maximize and so the project should be accepted.
3 4 5
30 25 20

than the NPV to the non-accountant being a


percentage return on investment.

3 4 5
750 600
-210 -225 -180
112.5 84.375 103.125

652.5 459.375 -76.875

3 4 5
1125 843.75
281.25 343.75

112.5 84.375 103.125


3 4 5
750 600
-97.5 -140.625 -76.875

3 4 5
1125 843.75
281.25 343.75

468.75 256.25

-97.5 -140.625 -76.875

3 4
1000 600
400 600
question 2 (a) Dec 2016

Years 0 1 2 3 4

Units'M 132500 159000 206700 206700

$'M $'M $'M $'M $'M


Sales 132500 15142857.14 18748299.32
Variable Cost
Fixed Cost
Marketing Cost

Operational Cashflow

Tax
Working Capital
Investment -16
Residual Value

Net Cashflows

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