CMA Study Group

 View Only

  • 1.  CMA Part 2 NPV

    Posted 06-22-2021 08:53 AM
    Hello, 

    Please see below question and answer. I am trying to understand how they go for example from a NPV of $5,000 on project R to the PV of cash flows of $15,000 in the answer. This is all the information given.




    ------------------------------
    Derrick Durbin
    Controller
    Graham NC
    United States
    ------------------------------


  • 2.  RE: CMA Part 2 NPV

    Posted 06-23-2021 01:43 AM
    Dear Derrick,

    NPV = PV of all capital inflows - Initial Investment

    5000 =  PV of all capital inflows - 5000.. That gives you 10,000

    --
    Thanks & Regards
    Naser Parkar
    +97433929964



    Original Message


  • 3.  RE: CMA Part 2 NPV

    Posted 06-23-2021 02:18 AM
    Profitability Index = PV Of cashflow 
                                     Initial Investment
    Profitability Index = Net Present Value + Initial Investment                                                       Initial Investment
     Above are the two formula for PI, In the solution they have used the second formula 

     E.g Project R→  (NPV)5000+10000(Investment)
                                = 15000 Pv Of Cashflow 
        And then apply the formula
    PI= PV of Cash flow / Initial Investment
        = 15000/10000
         =1.5
    In the same way you can find the PI of other projects 


    ------------------------------
    Abhinav Pandey
    Student
    MUMBAI
    India
    ------------------------------

    Original Message


  • 4.  RE: CMA Part 2 NPV

    Posted 06-23-2021 02:56 AM
    Hello Derrick,

    NPV= PV of cash inflows - Initial investment

    in the question NPV and investment is given, so you can arrive at the PV of cash inflows based on the above formula.

    Let me know if this helps.

    Thanks,
    Kiran



    Original Message


  • 5.  RE: CMA Part 2 NPV

    Posted 06-23-2021 02:57 AM
    I am yet to study this chapter, but still..

    NPV is "Net" of inflows and outflows.
    NPV of 5000 (for R) includes 10000 initial outflow
    If you exclude the initial outflow 5 - (-10), you get 15000
    15000 is the PV of total inflows

    hope that makes sense!



    Original Message