Individual Assignment

TECHNOLOGY PARK MALAYSIA

AQ035-3-M

Managerial Finance

NPCMF1807MBA

HAND OUT DATE: 3rd Feb 2019

HAND IN DATE: 12th June 2019
WEIGHTAGE: 50%
STUDENT ID: NP000269

INSTRUCTIONS TO CANDIDATES:

1 Submit your assignment at the administrative counter

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the softcopy of the written assignment and source code (where appropriate)
should be on a CD in an envelope / CD cover and attached to the hardcopy

7 You must obtain 50% overall to pass this module

 
 
 Acknowledgement
 
 
In preparation of my assignment, I had to take the help and guidance of some respected persons,
who deserve my deepest gratitude. As the completion of this assignment gave me much pleasure,
I would like to show my gratitude to Mr. Indra k. Kattel for giving me good guidelines for
assignment throughout numerous consultations. I would also like to expand my gratitude to all
those who have directly and indirectly guided me in writing this assignment.

Shruti Jaiswal

NP000269

 
 
 Table of Contents  
 
 
Acknowledgement ..............................................................................................................................................

1. Background ............................................................................................................................................. 1

2. Capital Budgeting ................................................................................................................................... 2

2.1 The Determinants of the capital budgeting technique’s selection............................................... 4

3. Tools and Techniques of Capital Budgeting ........................................................................................ 6

a. Net Present Value (NPV) .................................................................................................................. 7
NPV Decision Rule: .................................................................................................................................. 8
Advantages of NPV ................................................................................................................................... 8
Disadvantages of NPV .............................................................................................................................. 9
b. Internal Rate of return (IRR) .......................................................................................................... 9
Decision criteria for IRR is: ................................................................................................................... 10
Advantages of IRR .................................................................................................................................. 10
Disadvantages of IRR ............................................................................................................................. 11

c. Modified Internal Rate of Return (MIRR) ....................................................................................... 11

Decision Criteria: .................................................................................................................................... 11
Advantages of MIRR .............................................................................................................................. 12
Disadvantages of MIRR ......................................................................................................................... 12

d. Profitability Index (PI) ........................................................................................................................ 13

Decision criteria ...................................................................................................................................... 14
Advantages of Profitability Index ......................................................................................................... 14
Disadvantages of Profitability Index ..................................................................................................... 14

e. Payback Period (PBP) .......................................................................................................................... 14

Decision Criteria of payback includes: ................................................................................................. 15
Advantages of Payback Period .............................................................................................................. 16
Disadvantages of Payback Period ......................................................................................................... 16

f. Discounted Payback (DPB) .................................................................................................................. 16

Advantages of Discounted Payback Period .......................................................................................... 17
Disadvantages of Discounted Payback Period ..................................................................................... 17

4. Conclusions............................................................................................................................................ 18

Question-2 .................................................................................................................................................... 19

 
 
1. Background
 

Managerial finance is associated with duties of the financial manager in business. They
dynamically manage financial affairs of many types of business financial and large, small and
profit seeking, they perform financial forecasting, cash management, credit administration,
investment analysis and fund procurement. In recent years, changing economic and regulatory
environments have increased the importance as well complexity of financial manager’s duties.
Today’s financial manager is more actively engaged in developing and implementing corporate
strategies aimed at growing the firm and improving its competitive position. As a result, many top
executives have come from the financial area.

The ongoing trend has been the globalization of business activity. As corporations have
dramatically increased their sales and investments in other countries, while foreign corporations
have increased there sales and direct investments occurs. These changes have created a need for
financial managers who help a firm to manage cash flows denominated in different currencies and
protect against the political and foreign exchange risks that naturally arise from international
transactions. Although these changes make the managerial finance function more complex that
can lead to a more rewarding and fulfilling career (Gitman, juchau, & Flanagan, 2011).

It is the broadest of the three areas, and the one with the greatest number of job opportunities.
Managerial finance is important in all types of businesses, whether they are public or private deal
with financial services, or are manufacturers. The types of jobs one combats in managerial
finance range from decisions regarding the plant expansions that chooses types of securities to
issue to finance expansion.

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2. Capital Budgeting

Capital budgeting is the process that managers use to make decisions about whether long-term
investments or capital expenditures are worth pursuing by their organizations. In other words,
capital budgeting is the process of planning, analyzing, selecting, and managing capital
investments. The basic notion is that managers use the capital, usually long-term funds, raised by
their firms to invest in assets is also called capital goods which enables the firm to generate cash
flows for at least several years into the future. The typical investments include replacements of
prevailing assets and expansion of existing or new product lines. It is the budgeting, which is one
of the most challenging tasks facing management because it concerns the investment decision,
that deals with allocating funds over time in order to achieve a firm’s objectives. For most
companies, the investment decision has a greater impact on value that does the financing decision,
which deals with acquiring needed funds. However, both investment and financing decisions are
intertwined and at the heart of financial management.

Further, capital budgeting has a long-term focus that provides a link to an organization’s strategic
plan, which specifies how an organization expects to accomplish long-term strategic goals. Many
capital investments require a substantial commitment of a firm’s resources that directly affect firm
performance, competitive position, and future direction, because capital investments often commit
a large amount of funds for lengthy periods, they are not only difficult or costly to reverse but also
difficult to convert to more liquid assets. Capital budgeting process is a system of consistent steps
for generating long-term investment proposals that shows reviewing, analyzing, selecting them;
and implementing and following up on those selected. This process is dynamic because changing
factors in an organization’s environment may influence the attractiveness of current or proposed
projects (Baker & English, 2011).

Capital budgeting is frequently used interchangeably with capital expenditure and as well capital
investment. Any expenditure that generates a cash flow benefit for more than one year, it is a
capital expenditure. For example, in the purchase of new equipment, expansion of production
capacity, buying another company, research & development, and so on.

2  
 
 
Moreover, it is a dynamic process that unfolds as the project develops revealing new information
as time elapses. Managerial flexibility is at the root of the real options approach, which enables
traditional capital budgeting techniques to incorporate managerial flexibility and information
revelation. In short, real options analysis tries to value the choices the option value that the
managers will have in the future and adds these values to the net present value. Theoretically,
corporate governance mechanisms such as the choice of capital structure, managerial
compensation contracts, structure of the board of directors, and ownership structure play an
important role in reducing or eliminating such investment distortions. However, the empirical
literature is inconclusive as to whether managers of well-governed firms make better investment
decisions than those of poorly governed firms.

It is the budgeting method of analyzing and comparing substantial future investments and
expenditures to determine which ones are most worthwhile. In other words, it is the process that
company management uses to identify that what capital projects will create the biggest return
compared with the funds that is invested in the project. For example capital budgeting involves
difficult decisions. The management has the right to decide that spend cash in the bank, takes out
a loan, or sell existing assets to pay for the new ones.

3  
 
 
2.1 The Determinants of the capital budgeting technique’s selection

The selection of the techniques of capital budgeting decision involves a multitude of factors that
may directly or indirectly affects the selection of the technique and the outcome of the analysis
and the final decision whether to accept the successful prospect or not. We can classify the
determinants of the technique selection into financial and non-financial factors On the other hand,
the nonfinancial factors includes: the age of the company, life of the project, management
experience and educational background, quality of the project, familiarity with investment, and
other external factor. The following points highlight the determinants of capital budgeting: -

• Size of Company:

The size of the company is the first variable, which is measured by the value of total assets; it is
found that generally the size is positively correlated with the use of the capital budgeting
techniques. They find that large companies use PB, NPV, IRR, IRR, more than small companies.

• Revenue growth:

The financial variable (Revenues Growth) determines the type of techniques used by the
company. Literatures show that the companies with higher growth rates use PB and NPV more
often and use other techniques such as adjusted present value (APV) less often when compared to
companies with lower growth rates.

• Profitability:

The profitability of any company is measured with the amount of net profits and as well as some
profitability ratios like (ROE, ROA, and Profit Margin Ratio). It is found that profitable
companies use more NPV and the relationship with other methods is either not significant or
negatively related to this variable.

• Liquidity:

Companies that have large cash balances are classified as liquid companies and also with less
liquidity risks. Therefore, they have an opportunity to make new investments. Studies show

4  
 
 
companies with more cash balance tended to use more excessively NPV and APV but they are
negatively correlated with PB, ARR and IRR and availability of enough cash is a good indicator
of liquidity.

• Age of the company:

Usually, new companies that is 5 years or less is found to have a strong relation with PB Capital
budgeting. The Projects are expected to continue for a long period tended to have excessive use
of, NPV and IRR.

5  
 
 
3. Tools and Techniques of Capital Budgeting

A tool is a device or computer app that enables to do something. For example, a microscope or a
modeling program and technique are a process or procedure that we usually follow. For example
there are guidelines for how to construct an effective scientific experiment such making sure the
participants are fair-minded. “It has a long-term focus that provides a link to an organization’s
strategic goals. Many capital investments require a substantial commitment of a firm’s resources
that directly affect firm performance, competitive position and future direction” (Baker &
English, 2011). The following are six methods or tools and techniques of capital budgeting used
to evaluate projects: -

Fig-1: Capital Budgeting Tools and Techniques

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a. Net Present Value (NPV)

It is based on time value of money and it is a popular DCF method. It discounts future cash flows
(both in and out-flows) using a target cost of capital and looks at the difference between the
present value of net cash inflows and cash outflows. A positive value indicates that the project is
profitable and the firm recovered its cost of capital and vice versa (Goel, 2015). The net present
value represents the differences between current value of money flowing into the project and the
current value of money being spent. Like, other capital budgeting methods, the profitability index
and payback period metrics, NPV accounts for time value of money, so opportunity costs and
inflation are not ignored in the calculation.

Moreover, to achieve this the net present value formula identifies a discount rate based on costs of
financing an investment or calculates the rates of return expected for similar investment options.
Therefore, the formula for net present value is longstanding and effective, but professionals in the
industry must still recognize the potential room for error that arises when relying on calculations
like investment costs, rates of discount, and projected returns these all of which rely heavily on
assumptions and estimates.
More precisely net present value of the project is the difference between present value of cash
inflows and outflows (Paudel, Baral, & Rana, 2011). It can be calculated by: -
n
NPV = ∑ CFt - CF0
t =1 (1+k)t
Where,
CFt = expected net cash flow at period t
CF0 = initial cash outlay / investment
n= project life
k= cost of capital / discount rate

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 Example of Net present Value

NPV Decision Rule:

If NPV ≥ 0 then accept

For Mutually exclusive investments, the project should be selected with the largest NPV
NPV < 0 then Reject.

Advantages of NPV

• Among other project valuation techniques it uses a discounted cash flows approach
• It helps to estimate the additional shareholders’ value taking into account the time value of
money concept
• It is stable with shareholders wealth maximization that adds net present values
• Generated by investments are represented in higher stock prices
• Consider both magnitude and timing of cash flows
• It indicates whether a proposed project is going to yield the investor’s required rate of return.

8  
 
 
Disadvantages of NPV

• Many people find difficulties to work with dollar that is return rather than a percentage return.
• The biggest problem with using NPV is that it requires predicting about future cash flows and
estimating a company's cost of capital.
• The NPV method is not relevant while comparing the projects that have differing investment
amounts.
• The NPV method is tough to apply when it is compared with other projects that have different life
spans.

b. Internal Rate of return (IRR)

An investment’s internal rate of return (IRR) is the discount rate that makes the present value of
all expected future cash flows equal to zero; or, in other words, the IRR is the discount rate that
causes NPV to equal $0 (Peterson & Fabozzi, 2002). It is also called the discounted cash flow rate
of return (or the rate of return (ROR).

Further, internal rate of return are commonly used to estimate the desirability of investments or
projects. All projects require the same amount of up-front investment, that the project with
highest IRR would be considered the best and undertaken first. A firm (or individual) should, in
theory, undertake all projects or investments available with IRRs that exceeds the cost of capital.
Investment may be limited by the availability of funds to firm and/or by the firm's capacity or
ability to manage numerous projects. The formula of IRR is: -

0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n

Where,
P0, P1, . . . Pn = the cash flows in periods 1, 2
IRR = The project's internal rate of return.

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 Example of IRR

Simulate that Company XYZ must select that whether to purchase a piece of factory equipment
for $300,000. The equipment would only last for 3 years, but is expected to make $150,000 of
supplementary annual profit during those years. The Company XYZ also thinks that it can sell the
equipment for scrap there after for about $10,000. By using the IRR, Company XYZ, which
determines that, whether equipment purchased is a better use of its cash than its investment
options that should return about 10%. This is how IRR equation looks in this scenario:

0 = -$300,000 + ($150,000)/(1+.2431) + ($150,000)/(1+.2431)2 + ($150,000)/(1+.2431)3 +

$10,000/(1+.2431)4

The investment's IRR is 24.31%, which is the rate makes the present value of the investment's
cash flows that is equal to zero. From a innocently financial standpoint, company XYZ should
purchase the equipment since it generates a 24.31% return for the Company that is much higher
than 10% return available from other investments.

Decision criteria for IRR is:

• If the IRR is greater than the cost of capital then the investment proposal can be accepted.
• If the IRR is less than the cost of capital then the investment proposal should be rejected.

Advantages of IRR

1. IRR encompasses the time value of money into the calculation.

2. IRR is an easy measurement to calculate.
3. It compromises a method to rank projects for cost-effectiveness.
4. It works well with other evaluation factors.
5. It is not interrelated with the required rate of return.

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Disadvantages of IRR

 
1. It can provide an incomplete picture of the future.
2. It ignores the overall size and scope of the project.
3. It ignores future costs within the calculation.
4. It does not account for reinvestments.
5. It requires calculations that are quite tedious for the average person.

c. Modified Internal Rate of Return (MIRR)

The Modified Internal Rate of Return (MIRR) is a financial formula that is used to compare the
return that a project can provide, its name suggests, it is a modified variety of the Internal Rate of
Return (IRR) calculation. It is a modification of the internal rate of return and is used in capital
budgeting as a ranking criterion for mutually exclusive projects. The idea behind the MIRR
method is that all project cash outflows are discounted at the cost of capital, and all cash inflows
are reinvested at the reinvestment rate. MIRR calculates the return on investment based on the
more judicious assumption that the cash inflows from a project shall be re-invested at the rate of
the cost of capital. As a result, MIRR usually inclines to be lower than IRR. The formula of
MIRR is: -

! 𝐹𝑉  (𝑃𝑜𝑠𝑖𝑡𝑖𝑣𝑒  𝑐𝑎𝑠ℎ  𝑓𝑙𝑜𝑤 ∗ 𝐶𝑜𝑠𝑡  𝑜𝑓  𝑐𝑎𝑝𝑖𝑡𝑎𝑙)

𝑀𝐼𝑅𝑅 = − 1  
𝑃𝑉  (𝐼𝑛𝑖𝑡𝑖𝑎𝑙  𝑂𝑢𝑡𝑙𝑎𝑦 ∗ 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔  𝑐𝑜𝑠𝑡)

(Source: (Hayes,  2019))

Decision Criteria:

• If MIRR is greater than cost of capital then the investment is expected to return more required,
so the project should be accepted.
• If MIRR is less than cost of capital then the investment is expected to return less required, so
the project should be not be accepted.

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• If MIRR is equal to cost of capital then the investment is expected to return what is required,
so it is indifferent between accepting and rejecting the project.

It tries to improve the performance of the IRR. It overcomes the deficiencies in the IRR method.
The rate for investing the cash inflows in the project can be chosen by the individual. For
example, if the specialist chooses to use the obstacle rate for reinvestment reasons, the MIRR
technique calculates the present value of the cash outflows, the future value of the cash inflows
(to the end of the project’s life), and then solves for the discount rate that will equate the present
value of cash outflows and the future value of the benefits. It is denoted as: -

Advantages of MIRR

§ MIRR overcomes 2 major disadvantages of IRR includes the elimination of numerous IRRs in
case of investments with strange timing of cash flows and secondly the re-investment
problem.

§ It helps in the measurement of understanding of an investment towards variation in the cost of

capital.
§ Considers all cash flows of the project
§ Considers the time value of money

Disadvantages of MIRR

• MIRR can be hard to understand for people going from a non-financial background.
• MIRR does not compute the effect of different investments on the wealth of investors in
absolute terms; NPV provides a more effective hypothetical basis for selecting investments
that are mutually limited.
• MIRR requires an estimate for the cost of capital in order to make a decision.

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d. Profitability Index (PI)
 

The profitability index (PI), also identified as the profit investment ratio (PIR) and as well the value
investment ratio (VIR), is a capital budgeting tool that measures the profitability of an investment
or project. The profitability index is an appraisal technique applied to potential capital outlays
and is a useful tool for ranking projects because it allows you to quantify the amount of value
created per unit of investment.

It is also known as profit investment ratio that is an investment tool of the financial professionals
use to determine if an investment should be accepted or not based on the time value of money
concept. It is the ratio of the present value of future cash profits, at the required rate of return to the
early cash outflow of the investment. “It can be gross as well net, that being purely gross minus
one. It is defined as the expected number of years required to recover the original investment is
simplest and, as far as we know, the oldest formal method used to evaluate capital budgeting
projects.” (Besley, Westson, & Brigham)
This is also a discounted cash flow method, which is determined by the ratio of the sum of present
values of cash inflows to the capital outlay (Rani & Mahammoud, 2017). It can be calculated by:

PI= ∑ [C f (1+r) – n]
I
Where,

Cf = Cash inflows
r = Discount Rate
n = Duration of the project
I = Initial investment or cash outflows

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Decision criteria

• If the PI ratio or B/C ratio is greater than one the project fulfills the criteria of acceptance.
• If the PI ratio or B/C ratio is less than one the project cannot be accepted.
• If the PI ratio or B/C ratio is equal to zero, the firm is indifferent to the project.

Advantages of Profitability Index

• Profitability index tells whether as investment increases the firm’s value

• It considers all cash flows of the project
• It considers the time value of money
• The risk of the future cash flows (through the cost of capital)
• PI IS valuable in ranking and choosing projects when capital is rationed.

Disadvantages of Profitability Index  

• It requires an estimate of the cost of capital in order to calculate the profitability index.
• It may not give the exact decision when used to compare commonly exclusive.
• It has difficulty in determining required rate of return.

e. Payback Period (PBP)

 

Payback period is the number of years that is needed to recover the investment cost. For example,
specially products Ltd.’s investment proposal requires an initial outlay of Rs 25 lakhs and by the
end of the third year the total estimated cash inflows are Rs 27.32 lakh- more than the initial outlay.
Therefore, we can say that payback period is 3 years. The payback can be defines, as the time
required for the cash inflows from capital investment project to equal the cash out flow. When
deciding between two or more projects, the usual decision is to accept the one with the shortest
payback. It is commonly used as a first screening method.

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Moreover, payback period can be easily calculated if even cash flows are likely to occur in each
period by simply dividing initial investment by annual cash flows (Pandey, I.M.; Indian institue of
Management, 2002).

Payback = Initial investment

Annual cash inflows

The cost of the machine is $28,120, and it is expected to bring the company a net cash flow of
$7,600 per year for the next fifteen years of the machine's useful life. The formula that is used to
compute PBP with even cash flows is as follows:-

Payback Period= 28129 = 3.7 years.

7600

Decision Criteria of payback includes:

• Payback is simple, both in concepts and as well applications. PBP does not use involved
concepts and tedious calculations and has few hidden assumptions.
• It supports the projects that generates extensive cash inflows in earlier years and differentiates
against projects, which brings substantial cash inflows in later years but not in earlier years.

• Emphasizes earlier cash inflows; it may be sensible criteria when the firm is pressed with
problems of liquidity.

Companies set a standard payback period. An investment is accepted if its payback is less than or
equal to the standard payback. It is a popular method in practice because it is simple in logic and
easy to compute, it helps to tackle risk and it focuses on liquidity. Payback period method, it is the
one that is most widely used in practice and offered the following reasons for its usage, it is easily
understood by all levels of management; it provides an insight on how quickly the initial can be
recouped & most managers see risk as time-related i.e. the longer the period.

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Advantages of Payback Period

• Payback period is simple to compute.

• It provides some information on the risk of the investment.
• PBP provides a crude measure of liquidity.
• It's an easy way to parallel several projects and then take the project that has the shortest
payback time.
Disadvantages of Payback Period

• There are no concrete decision criteria to indicate whether an investment increases the firm’s
value.
• It ignores cash flows which is beyond the payback period.
• Payback period ignores time value of money.
• It ignores the risk of future cash flows.

f. Discounted Payback (DPB)

In this method it adds discounting to the basic payback period calculation, and thereby it
critically increases the accurateness of its results. Its formula is used in capital budgeting to
compare project or projects against the cost of the investment. The adolescent payback period
formula can be used as a quick measurement; however discounting each cash flow can provide a
more accurate picture of the investment.

Further one of the serious objections to the payback method is that it doesn’t discount the cash
flows for calculating the payback period. Some people, therefore, discount cash flows and calculate
the discounted payback period. The number of intervals taken in recovering the investment outlay
on the present value basis is called the discounted payback period. (Khan & Jain, 2003)

16  
 
 
For example, suppose that an initial cost of a project is $5000 and each cash flow is $1,000 per
year. The PBP formula would be of 5 years, and the initial investment is divided by the cash flow
each period. However, the discounted payback period looks at each of those $1,000 cash flows
based on its present value. Suppose that the rate is 12%, and the present value of the first cash flow
would be $909.09, which is $1,000 that is divided by 1+r. The calculation for PBP can be done by
the help of following formula: -
Discounted payback period= A+ B
C
Where,
A= Final period with a negative discounted cumulative cash flow.
B = Absolute value of discounted collective cash flow
C = Shorter discounted cash flow

Advantages of Discounted Payback Period

• DPB considers the time value of money by deflating the cash flows using the cost of capital of
company.

• It reflects the riskiness of the project’s cash flows (through the cost of capital).
• The concept aid the method is easy to understand.

 Disadvantages of Discounted Payback Period

• No concrete decision criteria that denote whether the investment increases the firm’s value.
• It requires an assessment of the cost of capital in order to calculate the payback.
• It disregards cash flows beyond the discounted payback period.
• Both simple and discounted payback method do not take into justification the full life of the
project.
• In some circumstances the discounted payback period of the project may be longer than the
maximum desired payback period of the management.

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4. Conclusions
 
 
To conclude this study, we can say that capital budgeting is a process of a company
used to determine whether the projects available are worth for pursuing in a long-term
venture such as new machinery, replacement of machinery, new plants and new
products for its business. Once a company has the calculations to analyze possible
investment return, they can make decisions about the long-term investment of a company’s
capital into operations. Hence, it is a very important aspect for a company’s financial
management in the long run. Besides that, capital structure is one of the important roles
for a company’s financial management. Capital structure known as a mix of a company’s
long-term debt, specific short-term debt, common equity and preferred equity.

People usually look into a firm’s debt-to-equity ratio because it provided insight on the
stability of a company; most of the companies apply capital budgeting techniques in
evaluating their investment opportunities. The percentage of frequent and always use
is very high for most of the techniques, and only few techniques are not used or
sometimes used. The payback technique (PB), NPV, IRR, and PI are widely used
techniques by a majority of the companies. Therefore, many companies frequently or
always use discounted cash flows.

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Question-2
 

Assume you are a financial analyst and you have one proposal of new project about developing a
new product taking six years with the cost of $200,000 per year. Once being produced, the new
product is expected to make $300,000 annually for 10 years. The cost of capital is expected to be
10% to 16%.

Assume all cash flows occur at the end of each year; calculate the NPV of this new investment
opportunity based on two different cost of the capital selected from the range given above and
decide if the company should develop the product with the selected cost of capital.

Answer:

Year: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

                           200000                                            200000                                                                                            Cash  Inflow  

                                                                                                   
                           Cash  
    Outflow  
 
 
 
Given,      
Present Value of cash outflow Present Value of Cash inflow

Present = $ 200000 Present= 300000

No of year = 6 years No of Year = 10 yrs.
Cost of Capital = 10% Cost of Capital = 10%

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Formula of cash Outflow Formula of Cash inflow

PV= Cf (1- 1) PV= Cf ( 1- 1 ) * 1

i (1- i) n i (1+ i)n (1-i)m

PV = 200000 (1- 1) = 300000 ( 1- 1) * 1

0.10 (1+ 0.1) 6 0.1 (1.1)10 (1.1)6

= 2000000 (1- 1) = 3000000 * 0.6144* 0.5644

(1.1) 6

= 2000000 (1- 1) = 1040588

1.771

= 2000000 (1.771-1)
1.771

= 2000000 (0.771)
1.771
= 2000000 * 0.4353
= 870600

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 NPV= Present value of Net cash outflow
Present value of Net cash inflow

= 870600
1040588

= 0.0836

Hence, Net present value of the project 10% cost of capital in this situation the project is
accepted where, NPV is greater than 0.

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References
 
 
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