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Define the concept of EOQ, its relevance, determine the EOQ and the time gap between two...

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Finance

Define the concept of EOQ, its relevance, determine the EOQ andthe time gap between two orders.

The expected cash flows of a project are as follows

ear

Cash Flows

0

-150000

1

20000

2

30000

3

40000

4

50000

5

30000

The cost of capital is 12% Discuss and Calculate

a. NPV for the project   300Words

b. Future value of benefits when compounded @12 % 300 Words

Answer & Explanation Solved by verified expert
3.7 Ratings (454 Votes)
a NPV of the project PV of Cash at 12 Investment 20000112 300001122 400001123 500001124 300001125 150000 3095712 Since NPV is negative the project should be rejected because it reduces value to the firm Here the future cash flows are all discounted from year 1 to year 5 and subtracted from the present value of investment Higher the time period of cash flow more will be discounting factor for that particular cash flow NPV PV of cash flows Initial Investment NPV is the best capital budgeting tool to identify a project between mutually exclusive projects and independent projects and to calculate the profitability of the investment The discounting factor taken here is the WACC of the project which is calculated by weighted average of cost    See Answer
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Transcribed Image Text

Define the concept of EOQ, its relevance, determine the EOQ andthe time gap between two orders.The expected cash flows of a project are as followsearCash Flows0-150000120000230000340000450000530000The cost of capital is 12% Discuss and Calculatea. NPV for the project   300Wordsb. Future value of benefits when compounded @12 % 300 Words

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