NPV

This topic has 5 replies, 2 voices, and was last updated 2 months ago by John Moffat.

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April 13, 2022 at 7:53 pm #653261
sarbrina
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Hi Mr. Maffot. I’m unable to solve this question. Please help me understand how to solve this question.

Q.) Investment is possible in one or more of three projects – expected life 4 years.

a b c
$ $ $
outlay 10000 7000 1250
expected returns
(t1 – t4)
4000 2500 325
The firm can borrow the finance at 10% pa.

Which project(s) should be undertaken?

a.) A only
b.) A and B
c.) A and C
d.) A and B and C
April 14, 2022 at 7:27 am #653279
John Moffat
Keymaster
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In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.

In the absence of any other information, they will invest in all projects that give a positive NPV. Therefore you need to calculate the NPV for each of the projects.
April 16, 2022 at 12:53 pm #653433
sarbrina
- Topics: 21
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Sorry Mr. Maffot, I thought this was the tutors forum. And i understand the question requires you to calculate the NPV, but i do not understand how to do it. Please explain how to arrive at the answer.
Thanks.
April 16, 2022 at 2:27 pm #653437
John Moffat
Keymaster
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I explain how to calculate the present value of an annuity starting at a later date (in this case starting at time 11) in my free lectures on investment appraisal.
April 17, 2022 at 12:19 pm #653477
sarbrina
- Topics: 21
- Replies: 48
Thank you sir
April 17, 2022 at 2:30 pm #653487
John Moffat
Keymaster
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You are welcome 🙂
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