Good night,
Can someone please provide assistance in working this question.
Initial cost $300,00
Expected life 5 years
Scarp value $20000
Addition revenue from the project per year $120,000
Incremental cost per year $30,000
Cost of capital 10%
Calculated the npv
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Calculating npv
12y ago#1Which part of the question is causing the problem?
The cash flows are (300,000) at time 0 - so PV is (300,000)
For years 1 to 5 there is a net inflow of 120,000 - 30,000 = 90,000 per year. You discount these using the 5 year annuity factor at 10%
In 5 years time there is an inflow of 20,000 - you discount this using the normal discount factor at 10%.
(I assume you have watched my free lectures on investment appraisal?)
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