please help me solve this…….how will the cash flows look like? able ltd is considering a new project for which the following information is available: initial cost $300000 expected life 5yrs estimated scrap value $20000 addition revenue from the project- $120000per year incremental cost of the project $30000per year cost of capital-10% calculate the NPV?

In future please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.

There is a cash outflow of 300,000 at time 0. There is an annuity of 90,000 (120,000 – 30,000) per year from years 1 to 5. There is an inflow of 20,000 at time 5.

How do we get 20% in the second question while discounting?I understand the questions given in the notes have given different percentage figures. I don’t understand how to apply it here.

As I explain in my free lectures (and as the answer to this question explains) you can use any two rates of interest – it does not have to be 12% and 20%.

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michaelmugendi says

please help me solve this…….how will the cash flows look like?

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

initial cost $300000

expected life 5yrs

estimated scrap value $20000

addition revenue from the project- $120000per year

incremental cost of the project $30000per year

cost of capital-10%

calculate the NPV?

John Moffat says

In future please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.

There is a cash outflow of 300,000 at time 0.

There is an annuity of 90,000 (120,000 – 30,000) per year from years 1 to 5.

There is an inflow of 20,000 at time 5.

safashaikh19 says

How do we get 20% in the second question while discounting?I understand the questions given in the notes have given different percentage figures. I don’t understand how to apply it here.

John Moffat says

As I explain in my free lectures (and as the answer to this question explains) you can use any two rates of interest – it does not have to be 12% and 20%.

safashaikh19 says

thanks sir!

John Moffat says

You are welcome 馃檪

waqasnaeem16 says

Why we used operating profits for payback in this question?where payback should be calculated on returns….

John Moffat says

Payback period should be calculated using the cash flows, as explained in our free lectures.

If you are referring to question 1, then the question has given the operating cash flows and not the operating profits.

salardehbashi says

In this question, isn’t the NPV negative?

(33,830)

hanscad007 says

It is positive