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MONTHS
YEARS
CALCULATION
• Cost of Project : RM 2 085 000
• Period : 5 years
• Initial investment : RM 2,500 000 ( debt + equity )
• Loan : 1 juta
• Equity : 1.5 m
• MARR : 10 %
• Assume that we are private company, our project cost is RM2, 085 000
Project Breakdown Based on Cash Flow
• MARR value that we assume in this project is 10%. This project is profitable
or acceptable if the CBR value is more than MARR value.
Return on Investment (ROI)
Compute the present equivalent of the estimated cash flows using the MAR as the interest rate.
If PW(MARR) ≥ 0, then the project is profitable.
If PW(MARR) < 0, then the project is not profitable.
FW(10%) = A [((1+i)^n-1)/i]
= 5 790 000 [((1+0.1)^5-1)/0.1]
= 35 348 529
FW(10%) = 35 348 529 (F/A, 10%, 5)
WACC =((1.5/2.5)x0.06)+[((1.0/2.5)x0.05)*(1-0.35))]
=0.049
=4.9%
Cost Benefit Ratio (CBR)
Investment : RM 2,500,000.00
Period : 5 years
Assumption of inflation : 3%
NPV = 12000000 / ( 1-0.03)^5
= 13, 974, 059
CBR =13, 974, 059/12,000,000
=1.16
Conclusion
• CBR=1.16, CBR> 0
• MARR=0.01
• CBR>MARR = profitable
• Since the profit margin and return of investment both shows a positive
figure, it means that our project will gain increment of income after period
of 5 years.