HND-SQA-财政预算outcome4-答案.docVIP

Introduction I’m going to calculate some periods in order to help Trical Plc make correct decision about the new investment. These periods include: the pay back period, ARR and NPV. Assumptions There is no taxation and inflation, by which the accounting statements and the value of money would be effected. The appropriate discount rate is known in able to calculate easier. The company has enough money to pay the total cost in order to avoid the chain broken of capital happen. The payback period Year Annual cash flow ￡ Cumulative cash flow ￡ 0 (1000,000) (1000,000) 1 160,000 (840,000) 2 160,000 (680,000) 3 320,000 (360,000) 4 320,000 (40,000) 5 320,000 280,000 Net cash benefit 280,000 280,000 ARR Project ￡ Capital Cost 1000,000 Profit in year 1 160,000 Profit in year 2 160,000 Profit in year 3 320,000 Profit in year 4 320,000 Profit in year 5 320,000 Total profit after depreciation 256,000 EQ EQ \F(Total profit,Project life in years) 256000/5 Average profit ￡51200 EQ \F(￡256000,￡1000000) * EQ \F(100,1) 25.6% NPV The calculation of net present value at 10% year Cash Flow present value factor at 10% present value ￡ ￡ ￡ 0 (1,000,000) 1.000 (1,000,000) 1 160,000 0.909 145,440 2 160,000 0.826 132,160 3 320,000 0.751 240,320 4 320,000 0.683 218,560 5 320,000 0.621 198,720 935,200 Net Present Value (64,800) Analysis Payback is the simplest method to appraise if the investment and project will make profit. Payback measures the number of years it is expected to take to recover the cost of the original investment. The shortest payback period of investment or project will be chosen. However, payback period is based on the accounting statements, inflation may be ignored in this method. The Tricol Plc would recover the initial fixed investment within 5 years, which means the company should accept the plan. ARR is another traditional investment and project appraisal method, according to the average annual profits to the capital investment formed as percentage to