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Calculate the net present value of the proposed investment

Assignment Help Financial Accounting
Reference no: EM132298826

Management Accounting and Finance

Learning outcome:

Apply capital budgeting practices and evaluate investment decisions.

Apply knowledge of working capital to effectively manage a business for a given situation.

Compare and contrast financing options for a given situation and make recommendations.

Discuss the principles of capital structure and cost of capital, and calculate the cost of capital.

Apply management tools to assist in the planning and control of business operations.

Use management accounting information to assist decision-making in a given business situation.

ASSIGNMENT INSTRUCTIONS

Question 1:

The management of BNZ bank is considering an investment in automatic teller machines. The machines would cost $513,000 each and have a useful life of 7 years. The bank's finance manager has estimated that the automatic teller machines will save the bank $110,000 per machine during each year of their life. The machines will have no residual value. Ignore company income taxes. You are required to:

A. Calculate the payback period for the proposed investment.

B. Calculate the net present value of the proposed investment, assuming a discount rate of: (i) 8%, (ii) 10%, (iii)12%.

C. What can you conclude from your answers to requirements A & B about the limitations of the payback method?

Verified Expert

Capital budgeting is the method of valuation of the different investments wherein the different proposals are evaluated and the best proposal on the basis of the net present value is chosen.This is done following the techniques of calculation of pay back period, net present value etc.

Reference no: EM132298826

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5/3/2019 10:59:07 PM

Activity Title: Assessment 5 Paper Number and Title: MGT200 – Management Accounting and Finance Conditions: This is a compulsory assignment. The completed assignment is to be submitted to your facilitator via Blackboard by the due date. The assignment is worth 10% of your final grade.

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