Question

# For the following project, calculate: (a) NPV at the end of the project (discount rate 15%)...

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

 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 )

 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

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