Net Present value Essay Example | Topics and Well Written Essays - 1250 words

Net Present cheer - Essay ExampleThere are various regularitys available for appraisal of a project equal Net Present Value, Pay back period and others. Here we are using NPV and payback method to analyze the project. Let us start with NPV method. NPV method recognizes the fact that a pound today is worth(predicate) more than a pound tomarrow. NPV is a calculation in dollars of the present value of all time to come cash in flows from a project. It is roughly analogous to the concept of profit.(Gary Heerkens, page 59) The total production per week is curtilage units and accordingly 52000 units for the category. As per information provided the contribution or profit per units will be 0.20 and as the deal for the year is 52000 units, total contributions towards profit is 10400. As the fixed operation court will get rock-bottom to 20000 on installation of equipment, the contribution after meeting variable cost would be 30400 for for each one of 10 years except for 5th year, w hen the unit will be closed for overhauling for 4 weeks. In the twenty percent year the contribution will be 29600. As there will also be an overhauling cost of 8000, the net profit will reduce to 1600 as compared to 10400 in each year. However, in the 10th year the residual value of equipments of 1000 will increase the profits to 11400. These profits represent cash inflows for each year as depreciation on equipment has not been considered for calculation of such profits. These cash flows have been discounted at the rate of 20% (PVIF table multipliers for each year) in order to calculate the present value of cash inflows from the project.