Question

Given the cash flows below, calculate the NPV, the NPVI Ratio, the IRR and the Equivalent...

Given the cash flows below, calculate the NPV, the NPVI Ratio, the IRR and the Equivalent Annual Value of the project using a 9% pa cost of capital. Ignore inflation and taxes. Show all your working and explain your processes.

0 -20000

1 9000

2 8000

3 9100

4 9000

5 6000

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Answer #1

NPV: $ 12,292.60

Year Cash Flows PV Factor at 9 % Present Values
1 $ 9,000 0.91743 $ 8,256.87
2 8,000 0.84168 6,733.44
3 9,100 0.77218 7,026.84
4 9,000 0.70843 6,375.87
5 6,000 0.64993 3,899.58
Present value of cash inflows $ 32,292.60
Less: Initial Investment 20,000
NPV $ 12,292.60

NPVI = $ 12,292.60 / 20,000 = 0.6146 or 61.46 %

IRR : 32%

Spreadsheet calculation of IRR:

A B C D E F G
1 Year 0 1 2 3 4 5
2 Cash Flow (20,000) 9,000 8,000 9,100 9,000 6,000
3 =IRR(B2:G2) 32%

Equivalent Annual Value = Net Present Value / PVIFA9%, n=5  = $ 12,292.60 / 3.8897 = $ 3.160.30

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