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June 24, 2020 at 10:57 pm
Sir, For the above question in the comment, do we take the additional revenue as the cash flows per year minus the extra cost?? because we are not provided with any other cash flows, and we do this using annuity table right??
December 25, 2019 at 5:20 am
Hi Sir, I know how to calculate NPV and IRR % but I got some tricky question in the exam. I would like to ask about my previous some exam question which I was failed. (Not exactly but some I still remember) Given net cash flow $9500 for 5 years ,cost of capital 12% Q1@ ask me to find investment if NPV $20000 (this amount not sure may be $2000 ) Q2@ ask me to find investment amount if IRR 18%… Can you help me how to calculate?
John Moffat says
December 25, 2019 at 1:31 pm
In future, please ask this kind of question in the Ask the Tutor Forum, and not as a comment on a lecture.
For the first question, you first discount the 9,500 cash flows by multiplying by the 5 year annuity discount factor at 12%. You then subtract 20,000 and this tells you what the initial investment will be.
For the second question, the IRR is the interest rate at which the NPV equals zero. So discount the 9,500 cash flows by multiplying by the 5 year annuity factor at 18%. The initial investment must equal the present value of the cash flows that you have just calculated.
November 16, 2019 at 4:45 pm
Great lecture! But I am a bit confused.. For the NPV, why are we applying the discount factor to the cash generated amount and not to the 80,000? For example, if we had borrowed 80,000 for the project at 10% rate, at the end of the 4 years period we would have paid in total (including interest) 117,128 and earned 110,000 (cash generated + scrap value of project), which would let us with a 7,128 cash deficit. I don’t understand that approach :/, is there any tip to help me to see what I am missing? Thanks a mil!!
November 23, 2019 at 3:44 pm
It would. seem that you have not watched the previous lectures on interest and on discounting, because I do explain in these lectures what is happening with discounting and why.
(The reason you would not end up with your cash deficit is because when you receive the money each year you will be using to pay back some of the borrowing and so the interest will be a lot lower.)
October 16, 2019 at 11:42 pm
classic! way better than my actual teacher.
October 17, 2019 at 7:52 am
Thank you for your comment 🙂
August 9, 2019 at 10:23 pm
Can you please explain how you got the discount factors, i have looked up the previous lectures and still can’t relate how you got 0.909 as a discount factor for 20000.. Please help!
August 10, 2019 at 10:41 am
You take the present value tables, and look at the column headed up 10% and the row for 1 period.
August 10, 2019 at 11:41 am
Thank you for the response.. Didn’t expect it to be this quick, have a great day ahead ?
November 2, 2019 at 3:53 pm
There is a formula also discount factor = 1/(1+r)^n Where r is the interest 10%= 0.1 And N is the period
August 7, 2019 at 5:36 pm
can u say how do we get the discount factor?
August 8, 2019 at 8:00 am
I explain how to get the discount factors in the lectures covering the previous chapter of our notes!!!
August 1, 2019 at 12:59 pm
i got lost getting to the IRR=13.78,from the lecture,it says IRR = 10% + (6660/8820 X 5%) = 10% + 3.78% ?????? I get totally different answers…..off the grid,please help!!
May 28, 2019 at 4:05 am
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?
May 28, 2019 at 8:19 am
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 🙂
May 3, 2019 at 2:41 am
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.
May 3, 2019 at 1:36 pm
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.
June 24, 2020 at 10:04 pm
April 18, 2019 at 12:23 pm
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%
April 18, 2019 at 2:48 pm
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.
April 19, 2019 at 7:50 am
tqvm sir for yr quick response. May God continue to bless u
April 19, 2019 at 3:23 pm
You are welcome 🙂
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