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    Assignment 1 (Part A and Part B)

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    botakmbg6035
    This document contains an assignment analyzing the cash flows of a project using different depreciation methods. It includes: 1) Generating cash flow diagrams and calculating metrics like NPV, IRR, and payback period using MACRS depreciation over 5 years. 2) Repeating the analysis using straight-line depreciation over 7 years and comparing the results. 3) Analyzing probability distributions for NPV and IRR based on the cash flow data and determining the likelihood of achieving certain values.

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    Assignment 1 (Part A and Part B)

    Uploaded by

    botakmbg6035
    281 views8 pages
    This document contains an assignment analyzing the cash flows of a project using different depreciation methods. It includes: 1) Generating cash flow diagrams and calculating metrics like NPV, IRR, and payback period using MACRS depreciation over 5 years. 2) Repeating the analysis using straight-line depreciation over 7 years and comparing the results. 3) Analyzing probability distributions for NPV and IRR based on the cash flow data and determining the likelihood of achieving certain values.

    Original Description:

    Assignment 1

    Original Title

    Assignment 1 (Part a and Part B)

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    This document contains an assignment analyzing the cash flows of a project using different depreciation methods. It includes: 1) Generating cash flow diagrams and calculating metrics like NPV, IRR, and payback period using MACRS depreciation over 5 years. 2) Repeating the analysis using straight-line depreciation over 7 years and comparing the results. 3) Analyzing probability distributions for NPV and IRR based on the cash flow data and determining the likelihood of achieving certain values.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    281 views8 pages

    Assignment 1 (Part A and Part B)

    Uploaded by

    botakmbg6035
    This document contains an assignment analyzing the cash flows of a project using different depreciation methods. It includes: 1) Generating cash flow diagrams and calculating metrics like NPV, IRR, and payback period using MACRS depreciation over 5 years. 2) Repeating the analysis using straight-line depreciation over 7 years and comparing the results. 3) Analyzing probability distributions for NPV and IRR based on the cash flow data and determining the likelihood of achieving certain values.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 8

    CEV633 - ASSIGNMENT 1

    Part A

    a. Generate the cumulative (non-discounted) after-tax cash flow diagram


    (Use multiple annual investment display option)

    Cash Flow Diagram


    1000.0
    Project Value (millions of dollars)

    500.0 Cumulative
    Cash Period

    0.0
    Land + WC
    -500.0
    FCIL

    -1000.0
    -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
    -1500.0

    Project Life (Years)

    b. From Part (a):


    i. Identify the cumulative cash period and cumulative cash ratio
    Cumulative Cash Period = $855.21 million dollars
    Cumulative Cash Period
    Cumulative Cash Ratio = 1 +
    Land + WC + FCIL
    855.21
    Cumulative Cash Ratio = 1 +
    1000
    Cumulative Cash Ratio = 1.9

    ii. Estimate the payback period


    3 years

    iii. Estimate the rate of return on investment


    17.1 %
    CEV633 - ASSIGNMENT 1

    c. Generate the cumulative (discounted) after-tax cash flow diagram.


    (Use multiple annual investment display option)

    Cash Flow Diagram


    0.0
    Project Value (millions of dollars)

    NPV
    -100.0 Discounted Land + WC
    -200.0
    -300.0
    -400.0
    -500.0 Discounted
    FCIL
    -600.0
    -700.0
    -800.0
    -900.0
    -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
    Project Life (Years)

    d. From Part (c):


    i. Identify the net present value and net present value ratio
    Net Present Value = $13.63 million dollars
    Present Value of All Positive Cash Flows
    Net Present Value Ratio = 1 +
    Present Value of All Negative Cash Flows
    13.63
    Net Present Value Ratio = 1 +
    800
    Net Present Value Ratio = 1.017

    ii. Estimate the discounted payback period


    5 years

    iii. Estimate the discounted cash flow rate of return (DCFROR)


    9.7%
    CEV633 - ASSIGNMENT 1

    Part B

    Repeat Part A (a to d) by using a straight-line depreciation method over 7 years.


    Non-discounted

    Cash Flow Diagram


    1000.0
    Project Value (millions of dollars)

    500.0

    0.0

    -500.0

    -1000.0
    -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
    -1500.0

    Project Life (Years)


    CEV633 - ASSIGNMENT 1

    Discounted

    Cash Flow Diagram


    0.0
    Project Value (millions of dollars)

    -100.0
    -200.0
    -300.0
    -400.0
    -500.0
    -600.0
    -700.0
    -800.0
    -900.0
    -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
    Project Life (Years)

    Compare the results with those previous obtained.

    Current Depreciation Method: MACRS over 5 years

    Straight-line Depreciation Method over 7 years


    CEV633 - ASSIGNMENT 1

    Propose the depreciation method would you use?


    The depreciation method that we use is Straight-line Depreciation Method over 7 years.
    CEV633 - ASSIGNMENT 1

    Part C

    Based on figure above, the net present value data shows the probability for the project start to
    loss profit at 67%.
    CEV633 - ASSIGNMENT 1

    Based on figure above, the discounted cash flow rate of return (DCFROR) data obtain was
    0.0943 thus approximately 60% chance.

    Hence, this analysis change my decision compared to that for the base case.
    CEV633 - ASSIGNMENT 1

    Part D

    The highest and the lowest NPV obtained from the net present value data presented in figure
    above are 970 million and 30 million respectively. The probability of getting 50 million of NPV
    from the lowest value is 3% while for the highest NPV the probability obtained is 97%.

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