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Calculating NPV and IRR of Given Investment Proposal

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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?

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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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