Homework Answers
11 a . Initial Investment =100000
Savings per year =20000
Number of Years =10
Rate =8%
NPV =PV of Savings -Initial Investment
=20000*((1-(1+8%)^-10)/8%)-100000=34201.63
IRR using excel Formula =RATE(10,-20000,100000) =15.10%
11 B. NPV of the investment when the cost of capital is 8%
=Perpetuity/Rate-Investment =20000/8%-100000 =150000
IRR of the investment =Perpetuity/Initial Investment
=20000/100000=20%
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