Assignment 4- Group 14.docx - 1a) NPV = Present value of...

1a)
NPV = Present value of cash inflows - Initial investment
= $28,000 * Cumulative PV Factor at 14% for 10 years - $110,000
= $28,000 * 5.216116 - $110,000 = $36,051
1b)
Payback period = Initial investment / Annual cash inflows = $110,000 / $28000 = 3.93
years
1c)
At IRR Present value of cash inflows is equal to initial investment.
$28,000 * Cumulative PV Factor at IRR for 10 years = $110,000
Cumulative PV Factor at IRR for 10 years = $110,000 / $28,000 = 3.92857
The PV factor falls between 21% to 22%, on intrapolation = 21.96%
1d)
Annual net income = Saving in cash operating cost - depreciation = $28,000 -
($110,000/10)
= $17,000
Accounting rate of return = Average annual income / Initital investment = $17,000 /
$110,000 = 15.45%
1e)
Accounting rate of return based on average investment = Average annual income /
Average investment
Average investment = (Initial investment + Salvage value) / 2 = $110,000/2 = $55,000
Accounting rate of return = $17,000 / $55,000 = 30.91%

2) Factors City Hospital should consider
 Quantitative financial aspect to analyze financial markets and securities.
 Qualitative factors such as improving employee morale, product quality etc.
 Financial factors such as expenses, incomes etc.
= 15.45%
2. Factors Homecare should consider include:
a. Quantitative financial aspects.