11 147 SolutionReply for the Percolated Fibre Question Below

Solution

Reply for the Percolated Fibre Question: Below is the table for Projected Cash Flows and calculation of NPV and IRR:

For calculating cash Flows, I have added the deprecioation to Profit after Tax as Depreciation is a non-cash expense. In year 0, we have capital expenditure of 20 million and 10 million for Working Capital Expenditure. The working capital Expenditure would be recovered in Year 10.

Since the NPV of the Project is >0 and IRR (27%) is greater than cost of capital, the company should go ahead with the Project.

For NPV and IRR, use excel formulas:

NPV = NPV(0.09,C9:L9)+B9; C9: L( is th range of 10 year cash flows starting from 8.76 to 18.76. B9- is the initial investment cost of (30)

=IRR(B9:L9)

Answer for Sarah Palin\'s Question

Since Sarah Palin received $11 million in advance in comparison to $ 8 million she would have recioved at the end of the year, as per the concept of Time value of money, she gets better returns with $11 million in Advance. The PV of $ 8 million after one year at this point of time stands at $7.27

PV= FV/(1+r)^n

NPV= 11-7.27 = $3.73 million

IRR stands at 27% for Sarah Palins book deal.

Answer for Dewy\'s Question:

Dewey is getting an upfront payment of 30, 000. Now, if Dew would have charged monthly fee for 8 hours per month at a rate of $250 per hour, it would have turned out to be $2000 per month. Now applying the below formula for PV

PV= FV/(1+r)^n for each of the months

= 2000/(1+.12/12)^1+2000/(1+.12/12)^2+2000/(1+.12/12)^3..... and so on

Excel Formula: =PV(0.12/12,12,-2000)

Present Value of these Payments come out to be 22510.55

NPV = 30000-22510.15= $7489.85