Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Sporting contract, net present value, payback



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13.17 Sporting contract, net present value, payback.
(30 min)
1a
Summary of cash inflows and outflows (in millions) is as follows

Cash outflows Cash
inflows
Net cash inflows
Year 1 (start)
NKr 3.000
NKr 0
NKr (3.000) Year 1 (end)
5.500 5.600 0.100 Year 2 (end)
6.200 8.300 2.100 Year 3 (end)
7.300 9.100 1.800 Year 4 (end)
7.900 9.700 1.800


Year
PV
discount
factor

Cash
outflows

PV of cash
outflows

Cash
inflows

PV of cash
inflows
0: Year 1 (start)
1: Year 1 (end)
2: Year 2 (end)
3: Year 3 (end)
4: Year 4 (end)

1.000 0.893 0.797 0.712 0.636
NKr 3.000 5.500 6.200 7.300 7.900
NKr 3.0000 4.9115 4.9414 5.1976 5.0244
NKr23.0749
NKr 0 5.600 8.300 9.100 9.700
NKr 0 5.0008 6.6151 6.4792 6.1692
NKr24.2643 The net present value of the Monteiro contract is NKr1.1894 (NKr24.2643 − NKr23.0749) million. An alternative approach to determine the NPV of the Monteiro contract is as follows

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