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9 November, 06:59

Siemens AG invests €80,000,000 to build a manufacturing plant to build wind turbines. The company predicts net cash flows of €16,000,000 per year for the next 8 years. Assume the company requires an 8% rate of return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor (s) from the tables provided. Round your present value factor to 4 decimals.) (1) What is the payback period of this investment? (2) What is the net present value of this investment?

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  1. 9 November, 07:02
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    a) the payback period of this investment = 5.00 years

    b) Net Present Value is €11,945,600

    Explanation:

    From the given information:

    a)

    The payback period of this investment is determined by using the formula:

    Payback Period = Cost of investment / annual net cashflow

    Payback Period = €80,000,000/€16,000,000

    Payback Period = 5.00 years

    Thus; the payback period of this investment = 5.00 years

    b) What is the net present value of this investment?

    The net present value of the investment is computed in the table below

    interest rate of return i = 8%

    no of year n = 8 years

    The PV factor is for 8 years and 8% is:

    Year 8% factor rate

    1 0.9259

    2 0.8573

    3 0.7938

    4 0.7350

    5 0.6806

    6 0.6302

    7 0.5835

    8 0.5403

    5.7466

    Cash Flow Select Chart Amount * PV Factor = PresentValue

    Annual Table B1 16,000,000 * 5.7466 = 91,945,600

    CashFlow (Using Excel)

    Net Cash

    Inflow 91,945,600

    Less:

    Investment 80,000,000

    Net Present 11,945,600

    Value
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