question archive A financial analyst predicts an investment plan that will require IDR 800 million in funds
A financial analyst predicts an investment plan that will require IDR 800 million in funds
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A financial analyst predicts an investment plan that will require IDR 800 million in funds. The investment is estimated to have an economic age of 4 years. The estimated profit and loss for each year is as follows:
| 1st year and 2nd year | 3rd year and 4th year | |
| Sales income | IDR 800000000 | IDR 865000000 |
| Costs | ||
| Depreciation | IDR 165000000 | IDR 165000000 |
| Cash | IDR 100000000 | IDR 105000000 |
| Total Cost | IDR 265000000 | IDR 270000000 |
| Profit before tax | IDR 535000000 | IDR 595000000 |
| Tax (35%) | IDR 187250000 | IDR 208250000 |
| Profit after tax | IDR 347750000 | IDR 386750000 |
At the end of the fourth year, it is estimated that a cash inflow terminal of Rp. 100 million will be obtained.
Questions
1). what is the NPV of the investment, if r = 17%?
2). what is the profitability index
3). what is the average rate of return
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| Year | 0 | 1 | 2 | 3 | 4 |
| Profit | 347,760,000.00 | 347,760,000.00 | 386,750,000.00 | 386,750,000.00 | |
| Add Back Depreciation | 165,000,000.00 | 165,000,000.00 | 165,000,000.00 | 165,000,000.00 | |
| Terminal Cash Inflow | 100,000,000.00 | ||||
| Initial Investment | (800,000,000.00) | ||||
| Total Cash Flow | (800,000,000.00) | 512,760,000.00 | 512,760,000.00 | 551,750,000.00 | 651,750,000.00 |
| Discounted Cash Flow | (800,000,000.00) | 438,256,410.26 | 374,578,128.42 | 344,496,454.51 | 347,806,418.94 |
NPV = -800,000 + 438,256,410.26 + 374,578,128.42 + 344,496,454.51 + 347,806,418.94 = 705,137,412.13
Profitability Index =Sum of discounted cash flows / Intial investment
= (438,256,410.26 + 374,578,128.42 + 344,496,454.51 + 347,806,418.94) / 800,000 = 1.88
Average Rate of Return = Average Cash Inflows / Intial Investment
ARR = [(512,760,000.00 + 512,760,000.00 + 551,750,000.00 + 651,750,000.00) / 4] / 800,000 = 69.66%
