Question

Moon Ltd invests Rs. 800000 in a paper manufacturing plant. This is expected to generate Rs. 150000 every year for next seven years.Cost of capital for the project is 10%PVAF for 7 years at 10% is 5.3349. Calculate NPV off the project?

Answer 1

Moon Ltd invests Rs. 800000 in a paper manufacturing plant. This is expected to generate Rs. 150000 every year for next seven years.Cost of capital for the project is 10%PVAF for 7 years at 10% is 5.3349. Calculate NPV off the project?

Answer 2

NPV off the project is $235

Explanation:

The computation of the net present value is shown below:

Net present value would be

= Cash inflows after considering the discount factor - initial investment

where,

Cash inflows after considering the discount factor would be

= Cash inflows × PVIFA factor for 7 years at 10%

= $150,000 × 5.3349

= $800,235

And, the initial cost of investment is $800,000

So, the net present value equal to

= $800,235 - $800,000

= $235

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