HERE, WHY WE ARE PUTTING 3,50,000 IN C03 (CF MODE IN CALCI)?

WE ARE SELLING THE PROPERTY AFTER NINE YEARS NOT IN 9th YEAR…

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The project involves purchasing an apartment complex for $550,000, receiving net after-tax cash flows for the next five years at $65,000 per year, followed by four years at $50,000 per year. After nine years, the property is expected to be sold for after-tax proceeds of $300,000.

When setting up the cash flow (CF) entries for a calculator, the cash inflows are positive, and cash outflows are negative. In this case:

So, the CF mode entries would look like this:

CF0 = -550,000 C01 = 65,000 C02 = 65,000 C03 = 65,000 C04 = 65,000 C05 = 65,000 C06 = 50,000 C07 = 50,000 C08 = 50,000 C09 = 50,000 C10 = 300,000

The reason C03 is set to 65,000 is because it represents the net after-tax cash flow in the third year of the project. The cash flow for each year is entered separately, and the sale proceeds are included in the last cash flow entry, which is in the tenth year of the project.

KINDLY RECHECK THE QUESTION…I AM ASKING WHY CO3 IS 3,50,000?

This answer was edited.If you draw a timeline then 0 1 2 3 4 5 6 7 8 9 we are entering 300000 in c03 because we are starting from zero na.. not 1.. zero to one is one period n so on so 9th period is getting over at 9 na… not 10… at beginning of 9th year this machine is used and benefits are recieved in the year of 50000 n at the end of the year (9th year) we sell it off.

Now let me help u with calculator.

Okay so when you are entering in calculator cf mode it shows Co (initial outflow) then down arrow then you find Co1 you enter 65000 then down arrow one time and it appears Fo1 this F01 is for frequency which means the number of times this same cash flow is being repeated. For faster calculation it helps to enter faster rather than entering 65000 again n again in Co1 n then CO2 n then CO3 n so on.. so instead here we can see 65000 comes 5 times so enter F01 as 5 n calculator will register ki we are getting 65000 (5 times) and then down arrow n then CO2 is 50000 then again down arrow n F02 will mean how many times we are getting 50000 here we are getting it 3 times so F02 will be 3 if we put this as 4 na then calculator will think that we will sell machine at end of 10th year which is not true. We are selling after 9th year which is beginning of 10th year.. 10th year machine is not being used nor is it kept idle. Isko 4 dalenge to sum aisa ho jayega that 10th year machine use nahi kiye idle rakhe and 10th k end m sell kiye.. so then CO3 which means last value of cash flow. Calculator from frequency has already understood that 5 plus 3 equals 8 years are over.. so you can enter 300000 plus 50000 in c03 and calculator will understand that this cash flow is recieved at 9th year. Full 9th year m 50000 from machine n 310000 from selling the machine.

Hope this helps.

hey! sorry.. my question is not about frequecy

the question is c03 should be 3,00,000 not 3,50,000

This answer was edited.Nahi it should be 350000 because 8th year got over okay.. then 9th year began.. so 9th year Jan to dec machine is used to give 50000 ka benefit to us.. then dec m sold machine for 300000

ok ok thankyou

machine sold after nine years not in the

ninth year

Yes baba, after 9 year ka matlab hai ki 9th year k end m which is also equal to 10th year ka beginning m.. not 10th year k end m.. tum samajho thoda baat ko.. in sirs video on DCF also there has been similar sums.. if I am not coming out clear then ekbar re-watch the DCF video. Maybe that will help. I’m trying but i think m unable to explain.

It seems there might be a misunderstanding in your interpretation. When evaluating the net present value (NPV) and internal rate of return (IRR) of a project, cash flows are typically discounted or calculated at each specific time period.

In the information you provided, the cash inflows from selling the property after nine years are considered at the end of the ninth year. The $300,000 after-tax proceeds from selling the property are a future cash inflow at the end of year 9, not at the beginning or during the ninth year.

If you are using a financial calculator, the cash flow at time period 9 would be entered as a positive value since it represents a cash inflow (proceeds from selling the property).

It’s important to distinguish between the time periods and the timing of cash flows when inputting values into financial calculations. If there’s a specific calculation or step where you’re unsure why $350,000 is used, please provide more details so that I can help clarify.

This answer was edited.AFTER NINE YEARS MEANS IN 10 YEAR

SO WE SHOULD ENTER CF0=-5,50,000

C01=65000

F=5

C02=50000

F=4

CO3=300,000

BUT THEY ARE ENTERING C02=50000

F=3 AND C03=3,50,000

Please provide the source of this question/statement so that i can help you.or provide more information

answer is given in book 1 provided by ssei

DCF: ques 6 of homework questions

According to me the term “CO3” isn’t relevant to the financial analysis of the apartment complex.

Here’s a breakdown of the relevant concepts:

Project Cost (CF0):Â This is the initial investment in the project, which is $550,000 in this case (represented as CF0 in the solution).Net After-Tax Cash Flows (CF1 & CF2):Â These are the annual cash inflows the project is expected to generate after accounting for taxes. They are $65,000 for the first five years (CF1) and $50,000 for the next four years (CF2).Terminal Value (CF3):Â This is the estimated after-tax proceeds from selling the property after nine years, which is $300,000 (CF3).Required Rate of Return (I):Â This is the minimum rate of return Camel Company expects from this type of project, which is 9% (I).The Internal Rate of Return (IRR) and Net Present Value (NPV) calculations use these values to assess the project’s profitability.

Reasoning Behind the Solution:IRR:Â The IRR is the discount rate that makes the NPV of the project equal to zero. Since the IRR (7.01%) is lower than the required rate of return (9%), the project is not profitable at the required threshold.NPV:Â The NPV is the present value of all future cash flows from the project, discounted at the required rate of return. The negative NPV (-$53,765) confirms that the project doesn’t meet the company’s minimum return expectation.BY ENTERING ALL THE ABOVEÂ VALUES

THE NPV IS COMING: -65,169.644

AND IRR 6.66%

after 9 year and in 9th year are same i.e. t=9

we are investing 550000 today at t=0

and receiving 65000 for 5 years i.e. t=1,2,3,4,5

after that we are receiving 50000 for 4 years i.e. t=6,7,8,9

after it says after 9 years we are receiving 300000 i.e. at t=9

so we are getting 350000 at t=9

in calci

cf0=550000

c01=65000, fo1=5

c02=50000, f02=3

c03=350000

f02 not taken 4 because we have to consider last 50000 and 300000 together as both are received at t=9 and if we take it 4 then it means 300000 is received after 10 year or t=10.

CF0 is at the begining of year 1,CF1 is not at the begining of year 1 its at the end of year 1 ,so after 9 years means at the end of year 9 i.e, CF9.

but for the first 5 years cashflow is 65000 each year so we will put cf1 = 65000 and frequency= 5 then next 4 years cashflow is 50000 each year but at the end of year 9 we are selling the plant and cashflow of the year 9 ie 50000 , so we will put cf2=50000 and frequency=3(till year 8), and 9th year’s cashflow 50000 and selling amount 300000 ,totally we get 350000 in year 9 , so cf3=350000 and frequency =1

then npv-i/y=9–>npv-cpt= -53764.5

npv is negative & irr =7.015<re=9, hence we should not do the project!

I hope you understand the logic

it is 3,50,000 in CO3 because at the end of the 9th year, there are 2 cash inflows taking place – (1) 3,00,000 for the sale of the property and (2) in the 9th year itself there is a cash inflow of 50,000.

since both these inflows are taking place in the 9th year, we are clubbing them together as 3,50,000.

in the question, we get 50,000 for 4 years (one of the 50,000 we are putting in the 9th year along with 3,00,000) the F2 will be 3 instead of 4.

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