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Hi Sir,
As per your request. This is the question
Section B
Able Ltd considering new project
initial cost 300000
expected life 5 years
estimated scrap 20000
addition revenue from project 120000 per year
incremental costs of project – 30000 per year
cost of capital 10%Need to calculate npv from this
There is an inflow of 90,000 a year (120,000 – 30,000) for 5 years. So you discount this using the 5 year annuity factor at 10%.
In addition there is an inflow of 20,000 in 5 years time, so you discount this using the normal present value discount factor at 10%.The net present value is the total of the two present values above, less the initial cost of 300,000.
(I do suggest that you watch the free lecture on investment appraisal)
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