FIN3701 Assignment 1
(COMPLETE ANSWERS) Semeste
2 2024 (232195) - DUE 20 August
2024
, QUESTION 1: Machine Selection (20 Marks)
1.1 NPV Calculation (9 Marks)
To calculate the NPV for each machine, we discount the future cash inflows using the firm's cost of capital
(12%) and subtract the initial investment. The NPV formula is:
NPV=∑(Ct/(1+r)t)−C 0
Where:
𝐶𝑡 = Cash inflow at time
r = Discount rate (12%)
C 0 = Initial investment
You'll apply this formula to each machine's cash flow.
1.2 Annualised NPV (ANPV) Calculation (9 Marks)
The ANPV is calculated by dividing the NPV by the annuity factor (which takes into account the discount rate
and the life of the project). The formula is:
ANPV= NPV/Annuity Factor
1.3 Investment Decision (2 Marks)
Based on the calculated NPV and IRR, you need to decide which machine is the best investment. Typically,
the machine with the highest NPV and IRR above the cost of capital should be selected.
(COMPLETE ANSWERS) Semeste
2 2024 (232195) - DUE 20 August
2024
, QUESTION 1: Machine Selection (20 Marks)
1.1 NPV Calculation (9 Marks)
To calculate the NPV for each machine, we discount the future cash inflows using the firm's cost of capital
(12%) and subtract the initial investment. The NPV formula is:
NPV=∑(Ct/(1+r)t)−C 0
Where:
𝐶𝑡 = Cash inflow at time
r = Discount rate (12%)
C 0 = Initial investment
You'll apply this formula to each machine's cash flow.
1.2 Annualised NPV (ANPV) Calculation (9 Marks)
The ANPV is calculated by dividing the NPV by the annuity factor (which takes into account the discount rate
and the life of the project). The formula is:
ANPV= NPV/Annuity Factor
1.3 Investment Decision (2 Marks)
Based on the calculated NPV and IRR, you need to decide which machine is the best investment. Typically,
the machine with the highest NPV and IRR above the cost of capital should be selected.
