Pincushion Demo Estate · Fictional venue and figures
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Pincushion Demo Estate · ZAR · fictional data
Investment review
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Does a conference upgrade justify its funding?
Five years of incremental pre-tax cash flows. Annual cash costs are R80,000, maintenance investment R5,000, opening working capital R20,000 and final recovery R20,000. The discount rate is 12%. Financing and tax effects need a separate review.
Net present value
R 83 802
Internal rate of return
23.6%
Payback
2.84 years
Peak funding
R 270 000
Net present value is the value left after paying for the investment and allowing for the 12% required return. Internal rate of return is the annual discount rate at which the project breaks even in present-value terms. Payback shows when cumulative cash recovers the outlay. Peak funding shows the largest shortfall that must be financed. The stated policy needs attention. Passing a threshold never automatically approves an investment.
| Scenario | NPV | Assumption |
|---|---|---|
| Base | R 83 802 | Entered revenue and costs |
| Downside | -R 74 808 | Revenue 20% lower; cash costs 10% higher |
| Upside | R 148 688 | Revenue 10% higher; cash costs unchanged |
Base NPV: pass · R 83 802 against R 0
Base IRR: pass · 23.6% against 15.0%
Payback: pass · 2.842105 years against 4
Peak funding: pass · R 270 000 against R 300 000
Peak funding versus available funding: pass · R 270 000 against R 300 000
Downside NPV: fail · -R 74 808 against R 0