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Calculating NPV and IRR of Given Investment Proposal

You are presented with a proposal for a project. The bottom line is that is claimed that if you invest 20 million in a project for this year, you will receive 5 million, 18 million, and 12 million over the following three years

a. Set up a worksheet that will tell you both the net present value of this project assuming a 12% discount rate and the internal rate of return for this project.

b. You decide that most likely the project will cost 24 million this year and return 4 million, 14 million and 10 million over the next three years. What would be the net present values and the internal rate of return?

Solution Preview

Please refer attached file for better clarity of tables and formulas used.

Solution:

a. Set up a worksheet that will tell you both the net present value of this project assuming a 12% discount rate and the internal rate of return for this project.

Discount rate=r=12%

Year End Cash flow, $ million PV factor, PVF PV , $ million
n C 1/(1+r)^n C*PVF
0 ...

Solution Summary

Solution describes the steps to calculate NPV and IRR of given investment proposal.

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