A Note On The Financial Evaluation Of Projects
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NET PRESENT VALUE Contd..
Re-investment Rate of 18%
|
Year
|
Cash Flow
|
FVIF @18%
|
Future Value
|
0
|
-155,000
|
|
|
1
|
38,000
|
1.939
|
73682
|
2
|
44,000
|
1.643
|
72292
|
3
|
49,000
|
1.392
|
68208
|
4
|
54,500
|
1.18
|
64310
|
5
|
60,000
|
1
|
60000
|
|
|
|
338492
|
| Modified NP |
= |
338492
1.145 |
- |
155000 |
= |
20802.14 |
|
|
Re-investment Rate of 12%Year
| Year |
Cash Flow
|
FVIF @12%
|
Future Value |
| 0
|
-155,000
|
|
|
| 1
|
38,000
|
1.574
|
59812 |
| 2
|
44,000
|
1.405
|
61820 |
| 3
|
49,000
|
1.254
|
61446 |
| 4
|
54,500
|
1.12
|
61040 |
| 5
|
60,000
|
1
|
60000 |
| |
|
|
304118 |
| Modified NP |
= |
304118
1.145 |
- |
155000 |
= |
2949.36 |
It can be inferred from the above calculations that the modified net present
value is greater than the net present value if the re-investment rate is
greater than the discount rate. However, it is less than the net present
value when the re-investment rate is less than the discount rate.
The drawback of the modified net present value method is determining the
rate of interest at which the intermediate cash flows will be re-invested.
More...
APPRAISAL TECHNIQUES IN PRACTICE FOR VARIOUS TYPES OF PROJECTS
CONCLUSION
EXHIBIT I ASPECTS OF PROJECT APPRAISAL
EXHIBIT II PROJECT EVALUATION TECHNIQUES
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