Question

NPV profile of a project. Given the following cash flow of Project​ L-2, draw the NPV profile. Hint​: Be sure to use a discount rate of zero for one intercept ​(y​-axis) and solve for the IRR for the other intercept ​(x​-axis). ​

Year 0​ = -$240,000

Year 1​ = $ 40,000

Year 2​ = $ 79,000

Year 3​ = $ 118,000

Year 4​ = $ 131,000

What is the NPV of Project​ L-2 where zero is the discount​ rate?

Answer 1

A B c. D E F G Н. - K L 1 Year 2 rate 0% 3 4 0 $ (240,000.00) 1 S 40,000.00 2 $ 79,000.00 3 $ 118,000.00 4 $ 131,000.00 5 6 7 NPV Profile 8 IRR 9 NPV 16.20% $ 128,000.00 $140,000.00 0%, $128,000.00 10 $120,000.00 11 $100,000.00 12 13 $80,000.00 14 Ž$60,000.00 15 16 $40,000.00 NPV Profile 0% $ 128,000.00 2% $ 107,365.81 4% $ 88,382.40 6% $ 70,884.91 8% $ 54,727.92 10% $ 39,782.80 12% $ 25,935.54 14% $ 13,084.81 16% $ 1,140.37 16.20% $0.00 18% S (9,978.34) 17 $20,000.00 16.20%, $0.00 18 $- 0% $(20,000.00) 5% 10% 15% 20% Discount rate 19 20 21 22 23 24

А B с D E F G H rate 0 1 Year 20 3 1 4 2. 5 3 6 4 7 8 IRR 9 NPV -240000 40000 79000 118000 131000 O o + =IRR(B2:B6) =B2+NPV(E2,B3:36) NPV Profile 0%, $140,000.00 $128,000.00 & Snipping Tool 10 $120,000.00 $100,000.00 T $80,000.00 O NPV $60,000.00 $40,000.00 11 12 O 13 0.02 14 0.04 15 0.06 16 0.08 17 0.1 18 0.12 19 0.14 20 0.16 21 =B8 22 0.18 23 4 NPV Profile =$B$2+NPV(A12,$B$3:$B$6) =$B$2+NPV(A13,$B$3:$B$6) =$B$2+NPV(A14,$B$3:$B$6) =$B$2+NPV(A15,$B$3:$B$6) =$B$2+NPV(A16,$B$3:$B$6) =$B$2+NPV(A17,$B$3:$B$6) =$B$2+NPV(A18,$B$3:$B$6) =$B$2+NPV(A19,$B$3:$B$6) =$B$2+NPV(A20,$B$3:$B$6) =$B$2+NPV(A21,$B$3:$B$6) I =$B$2+NPV(A22,$B$3:$B$6) $20,000.00 16.20%, $- $- 0% 5% 10% 15% 20% $120,000.00) Discount rate

NPV is calculated as = initial cash outflow + NPV( rate, values of cash inflows)

IRR is calculated directly using IRR function in Excel

The NPV profile is calculated using different discount rates but same formula