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initial cost – $300,000
expected life – 5 years
Estimated scrap value – $20,000
Addition revenue from the project – $120,000 per year
Incremental costs of the project – $30,000 per year
cost of capital – 10%
kindly, please solve it for me
There is an initial cost of $300,000, so the present value of this is $300,000.
There is a net inflow of 120,000 – 30,000 = 90,000 per year for 5 years. To get the present value of these flows, multiply 90,000 by the 5 year annuity discount factor at 10%.
Finally, there is a scarp receipt of 20,000 in 5 years time. To get the present value of this, multiply by the ordinary present value factor for 5 years at 10%.
The net present value is then the total of the PV’s of the 2 sets of inflows, less the initial outflow of 300,000.
Thanks for you reply
But what about IRR shall we calculate to the rate will give minus Net present value from the 90000 0nly or both ?
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