Capital Budgeting Company G Revision
A1: Net Cash Flow
No figures provided in line 30(net annual cash flow). Annual depreciation is incorrect at $832,500
A2: Net Present Value
NPV calculation of 447,056 is incorrect. Revision needed for:
Years 1 through 8
PV factor and present value calculation for working capital return
Building restoration costs-whether should be treated as cash inflow or outflow
Total-formula needs revision
Investment-146,276 is correct
Net Present Value is incorrect
Stated IRR at 9,000 is incorrect. Revision needed for all cash flows.
Provide final answer rounded to nearest thousandth of a percent
A4: Accounting rate of return
11.69% is not correct ARR
A5: Payback Period
Payback period calculation of 0 years and 0 months is incorrect. Investment amount not correct at 220,000. All cash flows need revision.
B1: Net Cash Flow Without Depreciation
$393,750 is not correct net cash flow for year 2 without depreciation.
B1a: Impact of Depreciation
Discussion regarding depreciation tax shield is correct.
Entrepreneur direct cash flow with depreciation for second year was 66,250 but no depreciation expense net cash flow rose to 393,750
B2a: Appropriate Action
Update stated NPV of project upon recalculation in part A2
B3a: Appropriate Action
Update stated IRR upon recalculation in A3
B5: Payback Period
Discuss advantages of the payback period method against other methods
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