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    Calculating Net Present Value (NPV) from cash flows

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    You are the finance manger of ABC Co. The Chief Executive is desirous of investing in a new venture. Preliminary findings and investigations have indicated that the venture might enhance the social corporate responsibility of the organization by creating employment.

    However, whether the project would be profitable or not has not been determined. The Chief Executive has therefore requested your assistance in evaluating the project. You have been requested the evaluate the net present value (NPV), and Internal Rate of Return (IRR) of the project. The relevant rate is 9%. The cash flows are presented below:

    Year Cash flow
    20x1 -$1,000,000
    20x2 $30,000
    20x3 $400,000
    20x4 $200,000
    20x5 $250,000
    20x6 -$60,000
    20x7 $250,000
    20x8 $200,000
    20x9 $100,000
    20x10 $200,000

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    Solution Summary

    The solution provides an easy and intuitive tool for computing Net Present Value as a tool for decision-making.