Question

A project costs Rs.81000 and is expected to generate net cash flow of Rs.40,000,Rs.35,000 and Rs.30,000 respectively over its life of three years. Calculate the NPV and IRR of the project.

Answer 1

Answer:

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Answer 2

NPV - Net present value, IRR - Internal Rate of Return

Explanation:

NPV = $-81000+\frac{40000}{1+i} +\frac{35000}{1+i} +\frac{30000}{1+i}$

where i = interest rate per annum which is given in the question

for IRR we equate the Present Value of Cash Inflows and Present Value of Outflows

$81000= 40000v+35000v^2+30000v^3$, where $v =1/(1+i)$ ; here i = IRR

We interpolate the above equation

IRR lies between 14% and 15%