9.6%

Cannot be determined

6.4%

11.0%

10.3%

Cashflow equals net capital investment + revenue less tax plus depreciation

Cashflow equals net capital investment + revenue less fixed and variable cash operating costs less tax

Cashflow equal profit after tax

Cashflow equals revenue less fixed and variable operating costs less tax

$348,685

$400,000

$316,987

$100,000

$250,000

The interest rate premium charged to a project’s cashflow to cover project and sovereign risk

The rate of return shareholders expect from a project

The interest rate Banks lend money to the company at

The rate used in a NPV calculation

The % discount applied to project cashflows by management

Cannot be determined

164,250

163,000

164,000

162,250

Project B accumulates more cash than Project A

The internal rate of return of Project B is greater than Project A

Project A must be more profitable than project B because it has a 5 year cashflow life

The capital cost of Project A is 50% of Project B

To determine the best project, the cashflows of Project A and Project B must be evaluated over a common number of years, which in this case is 10 years

NPV = I - \sum^n_0 C_i

Where:

I is the initial investment

C_i is the after tax cashflow in Year i

n is the number of years of cashflow

NPV = C_0 + \frac{C_1}{1+R} + \frac{C_2}{(1+R)^2} + \frac{C_3}{(1+R)^3} + ... + \frac{C_n}{(1+R)^n}

Where:

C_i is the after tax cashflow in Year i

R is the discount rate 

n is the number of years of cashflow

NPV = \sum^n_0 C_i

Where:

C_i is the after tax cashflow in Year i

n is the number of years of cashflow

NPV = \sum^n_0 \frac{C_i}{n!}

Where:

C_i is the after tax cashflow in Year i

n! is factorial of the number of years of cashflow, n! = 1 * 2 * 3 * ... * n

NPV = \sum^n_0 P_i

Where:

P_i is the after-tax profit in Year i

n is the number of years of profit

$110.25

$110.00

$210.00

$90.70

Accounting and tax depreciation rates and calculation methodologies are often different

Tax depreciation reduces taxable income

Straight line depreciation amortizes the capital cost of an asset over its expected life

Depreciation is a non-cash expense

Depreciation varies annually depending upon the market value of the asset

The discounted cashflow rate is zero

Your recommendation on whether to proceed with this project will depend upon the organization’s project hurdle rate of return

The internal rate of return is 12.0%

A Company’s project hurdle rate is equal or higher than its weighted average cost of capital