Question 4.Act.12: What is the NPV of the Chaotic Industries project from Activ...

Financial Management for Decision Makers

What is the NPV of the Chaotic Industries project from Activity 4.2, assuming a 15 per cent opportunity cost of finance (discount rate)? (Use the table in Appendix A.)

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Remember that the inflows and outflow are expected to be:

Time		£000
Immediately	Cost of vans	(150)
1 year’s time	Saving before depreciation	30
2 year’s time	Saving before depreciation	30
3 year’s time	Saving before depreciation	30
4 year’s time	Saving before depreciation	30
5 year’s time	Saving before depreciation	30
6 year’s time	Saving before depreciation	30
6 year’s time	Disposal proceeds from the vans	30

The calculation of the NPV of the project is as follows:

Time	Cash flows £000	Discount factor (15%)	Present value £000
Immediately	(150)	1.000	(150.00)
1 year’s time	30	0.870	26.10
2 year’s time	30	0.756	22.68
3 year’s time	30	0.658	19.74
4 year’s time	30	0.572	17.16
5 year’s time	30	0.497	14.91
6 year’s time	30	0.432	12.96
6 year’s time	30	0.432	$\underline{12.96}$
NPV $\underline{( 23.49 )}$

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