Calculate the npv for discount rates, Macroeconomics

Shambles, a large toy retailer, are looking at bringing out a new range of soft toys. The range under consideration is "Mythical Beasts."  The "Mythical Beasts" range will cost £50,000 to setup and has running costs of £12,000 per year after that for five years.

The predicted return from this range is:

Year

2012

2013

2014

2015

2016

£

24,000

28,000

32,000

36,000

40,000

Assume a discount rate of 10%. Use Excel to set up a discounted cash flow analysis of the above information, calculating the net present value (NPV) for the investment. Remember that the initial expenditure takes place in 2011.

Your spreadsheet must be constructed in such a way that it can accommodate different values of the discount rate, and must be as efficient as possible. This means that formulae and fixed cell-referencing must be used where appropriate.  Also, the entire analysis must be contained in a single table.  Include a print-out of cell values as well as a print-out of cell formulae.

(i)  From the information in the spreadsheet only, decide whether or not this is a worthwhile investment, giving your reasons.

(ii) Explain the effect of discounting in this case upon future inflows, outflows and the NPV.

(b) Calculate the NPV for discount rates of 20%, 30%, 40% and 50%, giving your answers to two decimal places.

(c) Using Excel and the data generated from part (b), plot NPV against the discount rate in the range 10% to 50%.

(Your graph must be labelled clearly.)

(d) Use your graph to estimate the discount rate that would give a NPV of zero.  What is the significance of this discount rate? (Hint: What happens at discount rates lower and higher than this figure?)

Posted Date: 3/20/2013 5:26:33 AM | Location : United States







Related Discussions:- Calculate the npv for discount rates, Assignment Help, Ask Question on Calculate the npv for discount rates, Get Answer, Expert's Help, Calculate the npv for discount rates Discussions

Write discussion on Calculate the npv for discount rates
Your posts are moderated
Related Questions
P and Y are both endogenous variables and according to the quantity theory of money we need P.Y = constant. If we divide both sides by P we get Y = constant / P. Because Y = Y D i

Does a firm's price equal marginal cost in the short run, in the long run, or both? Explain.

Differences between absolute advantage and comparative advantage?              Ans) Absolute benefit and comparative benefit are two basic concepts to international trade. Under

outline two main restrictions by indian government applied to import. Using the data from your case study analyse and explain who would benefit directly and who would lose directly

Newspaper vending machines are designed so that once you have paid for one paper; you have access to all the papers in the machine and could take multiple papers at a time. However

Suppose the utility function is given by: u(x,y) = 3x+4y. What kind of goods are X and Y and what is the MRS?

what would be effect of fiscal and monetry policy on price and output level if meges are flexible and rigied?

Define the term - Productivity Productivity is the concept which measures how outputs can be maximised from given inputs. In factories labour productivity is normally calculate

Syesha loves to eat Sunday breakfast at her local Scrambles restaurant. She usually orders a la carte. Her usual breakfast consists of 2 scrambled eggs, 1 piece of bacon and 2 link

Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of