# CMA Study Group

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## Explanation required #### Anupama D21 days ago #### VIMAL RAJ CHAKKINGAL20 days ago • #### 1.  Explanation required

Posted 21 days ago
Hi,

Ben Manufacturing is analyzing a capital investment project that is forecasted to produce the following cash flows and net income.

If Foster's cost of capital is 12%, the net present value (NPV) for this project is:

A. \$6,074.
B. \$924.
C. \$6,998.
D. \$(1,600).

Can help in solving this in detail.

Regards,
Anupama D

• #### 2.  RE: Explanation required

Posted 20 days ago
Hi,

See in capital budgeting we need to Consider only the cash flow aspect and not the income aspect.

Now here the coc is 12%. So
The PVf of 12% for 4 yrs will be
(1 / 1+r)^n

So for yr 1 = (1/1.12)^ 1 = 0.893 *6000
Yr 2 = 0.797 *6000
Yr3 = 0.712 *8000
Yr 4= 0.636 *8000

So NPV = PVCIF - PVCOF
ie, Npv = 20924 - 20000 =\$ 924

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VIMAL RAJ CHAKKINGAL
Student
India
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• #### 3.  RE: Explanation required

Posted 19 days ago
Year.     After Tax CF      PVF 12%        Cash Flow
0.                (20000).          1.00.             (20000)
1.                  6000.             0.893              5358
2.                  6000.             0.797.             4782
3.                  8000.             0.712.             5696
4.                  8000.             0.636.             5088
Total                                                             924

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NITIN WAGHELA
Accountant
Mumbai
India
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