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NPV and IRR Calculation Guide

This document contains calculations to determine the net present value (NPV) and internal rate of return (IRR) for a project with cash flows over 5 years at a discount rate of 12%. The NPV is calculated to be -$1,260. To calculate the IRR, cash flows are discounted at rates of 10% and 15% and the IRR is determined to be 10.925% using the formula provided.

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115 views1 page

NPV and IRR Calculation Guide

This document contains calculations to determine the net present value (NPV) and internal rate of return (IRR) for a project with cash flows over 5 years at a discount rate of 12%. The NPV is calculated to be -$1,260. To calculate the IRR, cash flows are discounted at rates of 10% and 15% and the IRR is determined to be 10.925% using the formula provided.

Uploaded by

waqas alw
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Assignment #01

Q:Compute NPV and IRR at the rate of 12%

YEAR 0 1 2 3 4 5
CASH FLOW -50000 15000 15000 20000 10000 5000

Computation of NPV

YEAR CASH FLOW Discounting Discounted


Factor Cash Flow
0 (50,000) 1 (50,000)
1 15,000 0.892 13,380
2 15,000 0.797 11,955
3 20,000 0.711 14,220
4 10,000 0.635 6,350
5 5,000 0.567 2,835
NPV 15,000 - (1,260)

Computation of IRR
By Assuming Lower rate of return as 10% and Higher rate of return is 15%.

Discounting Discounting Discounted Discounted


YEAR CASH FLOW Factor lower Factor higher Cash Flow Cash Flow
rate rate lower rate higher rate
0 (50,000) 1 1 (50,000) (50,000)
1 15,000 0.909 0.869 13,635 13,035
2 15,000 0.826 0.756 12,390 11,340
3 20,000 0.751 0.657 15,020 13,140
4 10,000 0.683 0.571 6,830 5,710
5 5,000 0.620 0.497 3,100 2,485
NPV 15,000 - - 975 (4,290)

IRR = a+ A (b-a)
A-B
IRR=10+ 975 ×(15-10)
975-(4290)
IRR=10+ 975 ×5
5265
IRR=10+0.185 ×5

IRR=10+0.925

IRR=10.925%

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