Page 257 - Microsoft Word - 00 ACCA F2 Prelims.docx

Capital budgeting

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
expenditure/disposal –500 50
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

Illustrations and further practice

Now try TYU question 9 from Chapter 14

251