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3 questions Essay Example

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After discounting, positive or higher NPV means that the project should be accepted; but not those projects with negative NPV.shareholders because these techniques consider the importance of ‘time value of money’. Basically, the use of discounted NPV and IRR can provide the shareholders with more accurate figures needed in making important business decisions.To build a completely new berth in an undeveloped area of the port. The development including the installation of fully automatic, computer driven handling equipment will involve a capital outlay of £10million. The operating costs for the new equipment, labour costs and other running costs for the scheme are set out below. It is expected that the new facilities will generate an increase in the users of the port resulting in extra revenue. The equipment is to be replaced after five years when it is expected to have a value of £700,000. The complete facility will be closed down after the five years.To reclaim and refurbish an old unused berth. The capital cost of this will be £4million. The running costs for this scheme have been estimated to be higher than scheme 1 and the revenue will not be as high, although it will increase. The cash flow for the scheme is as set out below. The scheme has a life expectancy of six years, with equipment being sold for £500,000 at the end of the expected life (six years) Revenue and costs have been estimated as followsPayback period aims to compute for the required time in which the company can recover the cost of investment. Based on scheme 1, the payback period is 3.34 years [£2,550,000 in Year 1 + £2,470,000 in Year 2 + £3,210,000 in Year 3 = £8,230,000 in the first 3 years + £1,770,000 of the £5,200,000 that occurs in Year 4].To compute for the present value of scheme 1, the available cash (annual revenue – total expenses) was multiplied with the corresponding PV factor based on 12% cost of capital. After adding all present value from Year 1 to Year 5, the initial investment of £10,000,000 was deducted from the total present value (£) to get the net present value (£).To compute for the present value of scheme 2, the available cash (annual revenue – total expenses) was multiplied with the corresponding PV factor based on 12% cost of capital. After adding all present value from Year 1 to Year 6, the initial investment of £4,000,000 was

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References

Agnew, H. (2014, March 17). Alternative investors set sale for shipping upturn. Financial News. [Online] Available at: http://www.efinancialnews.com/story/2014-03-17/hedge-funds-private-equity-shipping?ea9c8a2de0ee111045601ab04d673622 [Accessed 15 November 2014].

Bison. (2014). Oaktree Capital Management. [Online] Available at: https://www.bison.co/firm/1181/oaktree-capital-management [Accessed 15 November 2014].

Bloomberg. (2014). Oaktree Capital Group LLC. [Online] Available at: http://www.bloomberg.com/quote/OAK:US [Accessed 15 November 2014].

Distressed Debt Investing. (2011, July 21). My Favorite Takeaways from the Oaktree S-1. [Online] Available at: http://www.distressed-debt-investing.com/2011/06/my-favorite-takeaways-from-oaktree-s-1.html [Accessed 15 November 2014].

Saul, J. (2013, December 18). Funds buy shipping loans from capital-conscious banks. Eruters. [Online] Available at: http://www.reuters.com/article/2013/12/18/shipping-banks-idUSL6N0JV2JF20131218 [Accessed 15 November 2014].

Oaktree. (2014). Official Website. [Online] Available at: http://www.oaktreecapital.com/about/ [Accessed 15 November 2014].

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