Page 347 - F2 - MA Integrated Workbook STUDENT 2018-19
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Capital budgeting
Example 2
X plc has the following estimated net cash flows for a new project.
X’s cost of capital is 10% per annum (round answers to the nearest $000).
Year 0 Year 1 Year 2 Year 3
$000 $000 $000 $000
Capital expenditure 500
Disposal proceeds 50
Revenue 400 500 300
Operating costs 100 150 110
Discount factors 1.000 0.909 0.826 0.751
Calculate the net present value for the project.
Year 0 Year 1 Year 2 Year 3
$000 $000 $000 $000
Capital –500 50
expenditure/disposal
Revenue 400 500 300
Operating costs –100 –150 –110
Net cash flows –500 300 350 240
PV factors 1.000 0.909 0.826 0.751
Discounted cash flows –500 273 289 180
Net present value 242
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