Question

A company is wondering whether to invest £18,000 in a project which would make extra profits of £10,009 in the first year, £8,000 in the second year and £6,000 in the third year. It’s cost of capital is 10% (in other words, it would require a return of at least 10% on its investment). You are required to evaluate the project.

69

likes
344 views

Answer to a math question A company is wondering whether to invest £18,000 in a project which would make extra profits of £10,009 in the first year, £8,000 in the second year and £6,000 in the third year. It’s cost of capital is 10% (in other words, it would require a return of at least 10% on its investment). You are required to evaluate the project.

Expert avatar
Clarabelle
4.7
93 Answers
To evaluate the project, we can use the Net Present Value (NPV) method. NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time, discounted at the company's cost of capital. The NPV formula is given by: NPV = \sum_{t=1}^{n} \frac{CF_t}{(1 + r)^t} - C_0 where: -CF_t is the net cash flow during the period t , - r is the discount rate (cost of capital), - n is the total number of periods, - C_0 is the initial investment cost. Given that: - Initial investment C_0 = £18,000, - Cash inflows in year 1 CF_1 = £10,009, - Cash inflows in year 2 CF_2 = £8,000, - Cash inflows in year 3 CF_3 = £6,000, - Cost of capital r = 0.10 (10%), Substitute these values into the NPV formula: NPV = \frac{£10,009}{(1 + 0.10)^1} + \frac{£8,000}{(1 + 0.10)^2} + \frac{£6,000}{(1 + 0.10)^3} - £18,000 Calculate the NPV to determine whether the project is a good investment or not. NPV \approx \frac{£10,009}{1.10} + \frac{£8,000}{(1.10)^2} + \frac{£6,000}{(1.10)^3} - £18,000 NPV \approx £9,099.09 + £6,611.57 + £4,507.89 - £18,000 NPV \approx £2,218.55 Since the NPV is positive (£2,218.55), the project is considered financially viable. A positive NPV suggests that the project is expected to generate more cash inflows than the initial investment, providing a return greater than the cost of capital (10%). Therefore, it may be advisable for the company to invest £18,000 in this project.

Frequently asked questions (FAQs)
Question: What is the domain of the function f(x) = sin(x) - cos(2x)?
+
What is the period of the trigonometric function f(x) = 3sin(4x) - cos(x)?
+
What is the standard equation of an ellipse with a major axis of length 8 and a minor axis of length 5?
+
New questions in Mathematics
-x+3x-2,si x=3
a ferry travels 1/6 of the distance between two ports in 3/7 hour. the ferry travels at a constant rate. at this rate, what fraction of the distance between the two ports can the ferry travel in one hour?
Use the digits of 1,9,2,3 to come up with all the numbers 98 and 95
Solve this mathematical problem if 3/5 of a roll of tape measures 2m. How long is the complete roll?
If the midpoint of point A on the x=3 line and point B on the y=-2 line is C(-2,0), what is the sum of the ordinate of point A and the abscissa of point B?
4x/2+5x-3/6=7/8-1/4-x
According to a survey in a country 27% of adults do not own a credit card suppose a simple random sample of 800 adults is obtained . Describe the sampling distribution of P hat , the sample proportion of adults who do not own a credit card
3. A rock is dropped from a height of 16 ft. It is determined that its height (in feet) above ground t seconds later (for 0≤t≤3) is given by s(t)=-2t2 + 16. Find the average velocity of the rock over [0.2,0.21] time interval.
A warehouse employs 23 workers on first​ shift, 19 workers on second​ shift, and 12 workers on third shift. Eight workers are chosen at random to be interviewed about the work environment. Find the probability of choosing exactly five first ​-shift workers.
The simple average of 15 , 30 , 40 , and 45 is
If a|-7 and a|9, then a|-63
9.25=2pi r solve for r
Fill in the P(X-x) values to give a legitimate probability distribution for the discrete random variable X, whose possible values are -5 ,3 , 4, 5 , and 6.
Calculate the difference between 407 and 27
A contractor gives a bank note for $10250 at a rate of 1% for one month. How much interest is charged for 4 months?
To find the increased amount on a standard term deposit with the following conditions: starting amount: BGN 13000, type of deposit: annual, annual compound interest rate: 1.4%, after 4 years;
Find sup { x∈R, x²+3<4x }. Justify the answer
Solve for B write your answer as a fraction or as a whole number. B-1/7=4
How many cards do you expect to pull from a poker deck until you get an ACE?
Sally’s sales for last Sunday were $1,278. That was an increase of 6.5% over her sales for the previous Saturday. What were her sales for the previous Saturday?