Question

For the following project, calculate:

(a) NPV at the end of the project (discount rate 15%)

(b) IRR at the end of the project.

Year (n)	0	1	2	3	4
Capex	-$600,000	-	-	-	-
Income	-	$200,000	$200,000	$200,000	$200,000
Undiscounted cash flow
P/F (15%)
Discounted cash flow
IRR	-	-	-	-

*P/F is the discount factor, converting a future value into a present value

Answer 1

Answer :

Year (n)	0	1	2	3	4
Capex	-$600,000	-	-	-	-
Income	-	$200,000	$200,000	$200,000	$200,000
Undiscounted cash flow	-$600,000	$200,000	$200,000	$200,000	$200,000
P/F (15%)	1	0.8696	0.7561	0.6575	0.5718
Discounted cash flow	-$600,000	$173,913	$151,229	$131,503	$114,351

• Computation of NPV :

Sl no.	Particular	Amount	Notes
1	Total Discounted Cash out flow	600000	Capex
2	Total Discounted Cash Flows	$570,996	Sum of discounted cash flow of year 1,2,3,4
(1-2)	Net Present Value	$29,004

b.) IRR of the project is 8% (in persentage) (see below working for computation )

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IRR of the project	initial Investment :	=	Present value * (1+R) ^ N
	600000	=	570996*(1+R)^4 years
	600000/570996	=	(1+R)^4 years
	10.51	=	(1+R)^4 years
		=	(1+R)
	1.8005	=	(1+R)
	1.8005-1	=	R
	.8005	=	R