Fin – project 1 & 2 polycorp limited steel division
Year | Cash Flow | NCFAT
1 | 10,000 | 8,000
2 | 12,000 | 9,600
3 | 15,000 | 11,700
4 | 17,000 | 13,400
5 | 20,500 | 16,200
The NPV of this project can be calculated by subtracting the initial investment from the sum of all discounted future cash flows. Assuming a discount rate of 7%, then the NPV should come out to around $631. This indicates that even though there is an overall positive return on this project it might still not be acceptable in certain circumstances; if for example our required rate of return was higher than 7% then we would need to reject this proposal since its current returns are not sufficient enough to cover such costs.
Ultimately when evaluating any potential investments it is important that we take into account various factors such as expected returns and risk associated with them so that decisions can be made accordingly. In this case while there is certainly money to be made here our calculations suggest that it may not necessarily meet all expectations set forth; therefore further analysis should be done before committing any funds in order to maximize returns whilst minimizing potential losses.
The explanation provided is accurate and informative. It provides a good overview of compounding and the time value of money, which are key concepts when it comes to calculating potential earnings from an initial investment. The example given is also helpful in understanding how these principles work together for this particular scenario. However, it could be further improved by providing more detail about the exact calculations used to arrive at the balance after 18 years, such as what type of formula was used or how inflation impacted the results.