WA3 Student assignment for Week 3 PDF

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This is for week three’s (week 3) written assignment....

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Case Study

Master of Business Administration, University of the People BUS 5111 Financial Management - AY2022-T1 Dr. Stacy Strebel. Wednesday, September 23, 2021, 11:55 PM

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Case Study This case has been carried over to the new initiative of the WePROMOTE Company, which my partner and I run. WePROMOTE is a provider of marketing materials. The idea being discussed is to make a one-of-a-kind smartphone cover. The case is rugged, stylish, and will work with nearly every smartphone type. It will include our client's logo, a well-known local business, and will be distributed during public relations activities by our client, and we believe that our company's next significant initiative will be a success so that we will make some calculations such as Net present value (NPV) and Internal Rate of Return IRR. Net Present Value (NPV) It is the ratio between cash inflows and cash withdrawals above a length of time, the net present value (NPV). A capital or project's NPV is calculated in capital budgeting and investment planning to determine its earnings. NPV is the outcome of computations performed to determine the present value of upcoming payments (Mansa, 2021). Calculation methods: NPV = (Cash flow X PV)– initial investment. present value (PV) = Future value (FV)/(1+intrest) n n = year Number Internal Rate of Return (IRR) As a financial analysis tool, the internal rate of return (IRR) is a measure that determines the feasibility of proposed investments. An interest amount reduces an accounting rate of return analysis's net present value (NPV) to zero. A greater internal rate of return makes an investment more appealing in general. The IRR is consistent for assets of different sorts to rank numerous future investments or projects equally. For the most part, when comparing investment choices

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that have comparable features, those with the greatest IRR are likely to be deemed the most advantageous (Khartit, 2021). Calculation methods: A series of cash flows may be calculated using Excel's internal rate of return (IRR) tool. Discount Rate Tax

6% 30%

Annual Cash Inflows Before Tax Annual Cash Outflows

$30,000 ($11,000) Today

Equipment Price

Year 1

Year 2

Year 3

Year 4

($70,000) $21,000

Revenues After Tax

$21,000

$21,000

$21,000

Cash Outflow After Tax

($7,700)

($7,700)

($7,700)

($7,700)

Depreciation Saving From Tax

$4,200

$4,200

$4,200

$4,200

Formula

Depreciation expense (Equipment Price / project years) X Tax rate = ($70,000 / 5) X 30% = $4,200

Cash Flow

($70,000)

Formula

Depreciation Saving from Tax+ Cash outflow after tax+ Revenues after tax $21,000+($7,700)+ $4,200 = $17,500

PV Factor

Formula IRR

($7,700)

(1-Tax) X Annual cash outflows = ($11,000) X (1-30%) = ($7,700)

Formula

NPV

$21,000

(1-Tax) X Annual cash inflows before tax = (1- 30%) X $30,000 = 21,000

Formula

Formula

Year 5

$17,500

$17,500

$17,500

$4,200

$17,500

$17,500

1.00

0.94

0.89

0.84

0.79

0.75

1

1/(1+6%)^1

1/(1+6%)^2

1/(1+6%)^3

1/(1+6%)^4

1/(1+6%)^5

($70,000)

$16,509

$15,575

$14,693

$13,862

$13,077

($70,000)+$16,509 +$15,575 +$14,693 +$13,862 +$13,077 =IRR (($70,000)+$16,509 +$15,575 +$14,693 +$13,862 +$13,077;6%) -- ( excel equation )

$3,71 6 7.93 %

Depreciation Impact Tax lessens the number of taxes a corporation or organization pays through tax deductions by tracking the reduction in the price of an item or commodities.

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Depreciation expenditure decreases the number of profits on which taxes are calculated, lowering the cost of taxes owing (Uradu, 2021). Conclusion. According to calculate NPV & IRR, we can see the NPV equal $3,716 is positive, and the IRR 7.93% is upper than the rate of 6%. So I recommend pursuing this business opportunity. References Khartit, K. (April 07, 2021). Internal rate of return (IRR). Investopedia. https://www.investopedia.com/terms/i/irr.asp Mansa, J. (August 29, 2021). Net present value (NPV). Investopedia. https://www.investopedia.com/terms/n/npv.asp Uradu, L. (January 30, 2021). What is the tax impact of calculating depreciation?. Investopedia. https://www.investopedia.com/ask/answers/031815/what-tax-impact-calculating-depreciation.asp...