A B C E . H J K L M N D Data for capital investment problem NPV approach to capital budgeting 1 2 3 4 Investment Opportunity: Purchase Price: Useful Life: Cost of Capital: Zimboozy $20,000 5 years 12.00% 5 6 6 PV 7 YEAR 0 1 8 8 9 9 Data: 2 Cash in 0 6,000 10,000 14,000 10,000 6,000 Cash out Net Flow $20,000 $ (20,000) 2,500 3,500 4,000 6,000 5,200 8,800 4,800 5,200 3,000 3,000 $ 6,500 pointage 10 10 10 10 10 10 10 3 11. Summary of annual cash flows 4 5 12 13 NPV 14 YEAR 0 1 2 15 16 Cash in Cash out $20,000 $ 6,000 2,500 10,000 4,000 14,000 5,200 10,000 4,800 6,000 3,000 Net Flow (20,000) 3,500 6,000 8,800 5,200 3,000 6,500 IRR approach to capital budgeting 17 3 18 Input the assumed cost of capital 20 4 5 19 20 $ 21 CASH IN 22 Instructions: YEAR 0 1 2 23 24 Analyze this investment opportunity and make a recommendation using the following 2 methods: 25 3 6,000 10,000 14,000 10,000 6,000 CASH OUT NET FLOW PV 20,000 (20,000) -20,000.00 2,500 3,500 3,500.00 4,000 6,000 6,000.00 5,200 8,800 8,800.00 4,800 5,200 5,200.00 3,000 3,000 3,000.00 $ 6,500 6,500.00 (must be 0) 26 4 5 27 * NPV * IRR 28 NPV 29 30 31 Invest or not? 20 A B C E . H J K L M N D Data for capital investment problem NPV approach to capital budgeting 1 2 3 4 Investment Opportunity: Purchase Price: Useful Life: Cost of Capital: Zimboozy $20,000 5 years 12.00% 5 6 6 PV 7 YEAR 0 1 8 8 9 9 Data: 2 Cash in 0 6,000 10,000 14,000 10,000 6,000 Cash out Net Flow $20,000 $ (20,000) 2,500 3,500 4,000 6,000 5,200 8,800 4,800 5,200 3,000 3,000 $ 6,500 pointage 10 10 10 10 10 10 10 3 11. Summary of annual cash flows 4 5 12 13 NPV 14 YEAR 0 1 2 15 16 Cash in Cash out $20,000 $ 6,000 2,500 10,000 4,000 14,000 5,200 10,000 4,800 6,000 3,000 Net Flow (20,000) 3,500 6,000 8,800 5,200 3,000 6,500 IRR approach to capital budgeting 17 3 18 Input the assumed cost of capital 20 4 5 19 20 $ 21 CASH IN 22 Instructions: YEAR 0 1 2 23 24 Analyze this investment opportunity and make a recommendation using the following 2 methods: 25 3 6,000 10,000 14,000 10,000 6,000 CASH OUT NET FLOW PV 20,000 (20,000) -20,000.00 2,500 3,500 3,500.00 4,000 6,000 6,000.00 5,200 8,800 8,800.00 4,800 5,200 5,200.00 3,000 3,000 3,000.00 $ 6,500 6,500.00 (must be 0) 26 4 5 27 * NPV * IRR 28 NPV 29 30 31 Invest or not? 20