Can you work out Section B - Question 1 a for the Mock exam for me please?
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NPV using Incremental Cost
8y ago#1The cash flows are as follows:
0 Initial cost (300,000) The PV of this is (300,000)
1 - 5 net inflow of 90,000 (120,000 - 30000).
To get the PV, multiply by the 5 year annuity factor at 10%
90,000 x 3.791 = 341,190
6 Scrap proceeds 20,000
To get the PV of this, multiply by the 5 year present value factor at 10%.
20,000 x 0.621 = 12,420
NPV = 12,420 + 341,190 - 300,000 = 53,610
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