CASH FLOW DIAGRAM AND ANALYSIS:

7.1 CASH FLOW FOR LOAN REPAYMENT

P = RM 2,050,250

i = 5%

n = 5years

A = P(A/P,i%,n)

A = 2,050,250(0.2310)

= RM 473,607.75

RM 2,050,250

0 1 2 3 4 5

A=RM 473,607.75

7.2 CASH FLOW FOR REVENUE OBTAINED AND MONEY SPENT

Money spent at year 2 after the completion of construction = RM 4,100,500

Revenue gained per year after completion = RM 2,500,000

 A=RM 2,500,000

0 1 2 3 4 5

RM 4,100,500

7.3 THE PRESENT WORTH METHOD

MARR is determined based on Opportunity Cost Viewpoint which is 10%.

RM 4,100,500

0 1 2
i = 10%

RM 3,388,653.2

PW(10%) = RM 4,100,500 (P/F,10%,2)

= RM 4,100,500 (0.8264)

= RM 3,388,653.2
Annual cash inflows for 5 years = RM 2,500,000

Initial investment = RM 4,100,500

Cost of capital = 10%

PV = RM 2,500,000 (P/A,10%,5)

= RM 2,500,000 (3.791)

= RM 9,477,500

NPV = PV – I

= RM 9,477,500 – RM 4,100,500

= RM 5,377,000

Since the NPV of the construction is positive, the construction can be accepted.

7.4 THE FUTURE WORTH METHOD

A=RM 2,500,000

0 1 2 3 4 5 i = 10%

RM 473,607.75 RM 473,607.75 RM 473,607.75

RM 947,215.5
FW (10%) = RM 2,500,000 (F/A,10%,5) – RM 473,607.75 (F/A,10%,2)

– (RM 9,945,623.35) (F/A.10%,1)

= RM 2,500,000(6.1051) – RM 473,607.75(2.100) – RM 9,945,623.35(1.000)

= RM 4,322,550.38

Hence, the project is clearly a profitable project.

7.5 ANNUAL WORTH METHOD

RM 2,500,000

i = 10%
0 1

RM 4,100,500 RM 473,607.75

RM 2,500,000 - RM 473,607.75 =
RM 2,026,392.25

0 1
i = 10%

RM 4,100,500
AW = RM 2,026,392.25 – RM 4,100,500 (A/P,10%,5)

= RM 2,026,392.25 – RM 4,100,500 (0.2638)

= RM 944,680.35