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FIN3701 JUNE 2023 EXAM MEMO

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FIN3701 JUNE 2023 EXAM MEMO

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FIN3701
EXAM JUNE 2023


QUESTION 1



NPV and IRR relating to the investment in project A.




Cash Certainty Certain PVIF Present value of
Year
inflows Equivalents Cashflows @10% cashflows
1 250 000 0,90 225000 0,909 204 525,00
2 160 000 0,80 128000 0,826 105 728,00
3 120 000 0,60 72000 0,751 54 072,00
4 100 000 0,50 50000 0,683 34 150,00
5 100 000 0,40 40000 0,621 24 840,00
Total 423 315,00




Discount rate = Risk free rate +risk premium

= 8 + 2 = 10%



Net Present Value: Present Value of Cash Inflows – Initial cost of Investment

= R423 315 – R450 000

= - R26 685.00



IRR (using the financial calculator) = 6.71%

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