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i can not understand how could calculate NPV and IRR in practical exam
initial cost- $300,000
Expected life- 5 years
Estimated scrap value – $20,000
Additional revenue from the project- $120,000 per year
imcremental cost of the project – $30,000 per year
cost of capital- 10%The cash flows are:
0 cost (300,000)
1 – 5 net inflow 90,000 per year
5 scrap value 20,000For the NPV, use the annuity tables to discount the 90,000 per year and the present value tables to discount the 20,000 (as explained in my free lectures on this).
Then discount again at a second interest rate and approximate between the two NPV’s to calculate the IRR, again a explained in the lectures.
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