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Calculating npv

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Calculating npv

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 28, 2014 at 3:10 am #171332
    Melissa
    Participant
    • Topics: 3
    • Replies: 20
    • ☆

    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

    May 28, 2014 at 4:37 pm #171448
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54765
    • ☆☆☆☆☆

    Which 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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