Question

Please fill in the blanks.

Net Present Value Calculation
	Year 0	Year 1	Year 2	Year 3
NCO	-100000
Annual Cash		20000	25000	30000
Residual Cash				70000
Required Rtn Cash Flow		12%	12%	12%
Req Rtn, Residual				15%
PV Mid-year Factors		0.57	1.62	2.68
Present Values	_____	_____	_____	_____
PV Residual				_____
NPV	_____
Formula: FV/(1+$TV)^N = PV
Internal Rate of Return Calculation
	Year 0	Year 1	Year 2	Year 3
NCO	_____
Annual Cash		_____	_____	_____
Residual Cash				_____
Discount Factor to Zero NPV
Trial/Error, Try:	___%
PV Mid-year Factors		0.57	1.62	2.68
Annual Cash	_____	_____	_____	_____
Residual Cash				_____
NPV	_____
IRR	____%
Formula: FV/(1+$TV)^N = PV

Answer 1

It is assumed that cash flow is given at the end of the year and so the present value factors are taken for the year and not of the mid year.

Year	cash flow	PVF@12%	PVF@15%	Present Values
0	-100000	1	-	-100000
1	20000	0.89	-	17857.14
2	25000	0.80	-	19929.85
3	30000	0.71	-	21353.41
3	70000	-	0.66	46026.14
NPV (total of all cash flow)				5166.53

IRR has been calculated by using trial and error method.

Year	cash flow	PVF @ 20%	PV	PVF @ 15%		PV
0	-100000	1	-100000	1		-100000
1	20000	0.83	16666.67	0.87		17391.30435
2	25000	0.69	17361.11	0.76		18903.59168
3	30000	0.58	17361.11	0.66		19725.48697
3	70000	0.58	40509.26	0.66		46026.13627
			-8101.85			2046.52
		IRR=	Difference of pvf/difference of percentage
		=	(2046.52-8101.85)/(.20-.15)
		=	6055.33/.05
		=	-159990.5
		=	16.00%