Investment appraisal — OpenTuition Forums

GGarvit6y ago

Hello sir Initial investment 1 million cash inflow year 1- 750000 Inflow year 2 -500000 Cost of capital year1-10% Cost of capital year 2-15% Calculate NPV of project? What they did is- 750000* year 1Df(.909) =681750 Now .909*.870 = .79*500000=395415 So npv 77000(nearest) But why would we do this ? Is there any other alternative? Thanks sir

John MoffatTutor6y ago#1

For the inflow at time 1, we discount for 1 year at 10%. For the inflow at time 2, we need to discount for 2 years - for one of the 2 years the interest is 10% and for the other year it is 15%, so we discount for 1 years at 10% and for one year at 15%. There is no other way of doing it. I explain the logic behind the discounting in my free lectures.

GGarvit6y ago#2

Thanks sir

John MoffatTutor6y ago#3

You are welcome :-)

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