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December 12, 2019 at 7:26 pm
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
December 13, 2019 at 8:38 am
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.
September 25, 2019 at 8:44 am
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.
September 25, 2019 at 1:49 pm
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%.
September 26, 2019 at 3:15 pm
September 27, 2019 at 8:56 am
You are welcome 🙂
September 23, 2019 at 6:47 pm
Why we used operating profits for payback in this question?where payback should be calculated on returns….
September 24, 2019 at 8:03 am
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.
July 11, 2019 at 7:39 pm
In this question, isn’t the NPV negative? (33,830)
August 4, 2019 at 3:39 pm
It is positive
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