initial cost 300000 expected life 5 years estimated scrap 20000 addition revenue from project 120000 per year incremental costs of project – 30000 per year cost of capital 10%
There is an inflow of 90,000 a year (120,000 – 30,000) for 5 years. So you discount this using the 5 year annuity factor at 10%. In addition there is an inflow of 20,000 in 5 years time, so you discount this using the normal present value discount factor at 10%.
The net present value is the total of the two present values above, less the initial cost of 300,000.
(I do suggest that you watch the free lecture on investment appraisal)