Able ltd is considering a new project for which the following information is available:

Initial cost – $300,000 Expected life – 5 years Estimated scrap value – $20,000 Additional revenue from the project – $120,000 per year Incremental cost of the project – $30,000 per year Cost of capital – 10% A) calculate the Net present Value of the project (to the nearest $)

Please answer this for me as i am bit confused about how to deal with incremental costs.

You must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture. The word incremental means extra – so incremental costs are extra costs.

hi sir, how solve this question? Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as $50. If the interest rate is increased by 1% the NPV of the project falls by $20.

What is the internal rate of return of the project?

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Gabriel says

i got a little lost, +6660 and -2160 is 8820? or in this step we just ignore the mathematical signs and just do regular addition?

John Moffat says

The difference between +6,660 and zero is 6,660

The difference between + 6,660 and – 2,160 is bigger and is 8,820.

This is standard arithmetic 🙂

saroj says

Able ltd is considering a new project for which the following information is available:

Initial cost – $300,000

Expected life – 5 years

Estimated scrap value – $20,000

Additional revenue from the project – $120,000 per year

Incremental cost of the project – $30,000 per year

Cost of capital – 10%

A) calculate the Net present Value of the project (to the nearest $)

Please answer this for me as i am bit confused about how to deal with incremental costs.

John Moffat says

You must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.

The word incremental means extra – so incremental costs are extra costs.

davthev says

hi sir, how solve this question?

Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as $50. If the interest rate is increased by 1% the NPV of the project falls by $20.

What is the internal rate of return of the project?

11.7%

20.0%

7.5%

12.5%

John Moffat says

You know that the NPV at 10% is $50.

You know that the NPV at 11% (10 + 1) is $30 (50 – 20).

Now you have two ‘guesses’ and you continue as I do in the example in my free lectures.

davthev says

tqvm sir for yr quick response. May God continue to bless u

John Moffat says

You are welcome 🙂