Homework Answers
Solution a:
Annual cash inflows = $33,000 - $15,000 = $18,000
| Computation of NPV | ||||
| Particulars | Amount | Period | PV Factor | Present Value |
| Cash Outflows: | ||||
| Cost of Equipment | $82,000.00 | 0 | 1 | $82,000 |
| Additional working capital | $13,000.00 | 0 | 1 | $13,000 |
| Present Value of Cash Outflows (A) | $95,000 | |||
| Cash Inflows: | ||||
| Annual cash inflows | $18,000.00 | 1-8 | 4.63886 | $83,499 |
| Residual value | $9,500.00 | 8 | 0.35056 | $3,330 |
| Release of working capital | $5,000.00 | 8 | 0.35056 | $1,753 |
| Present Value of Cash Inflows (B) | $88,583 | |||
| Net Present Value (B-A) | -$6,417 | |||
Solution b:
| Computation of IRR | ||
| Period | Net Cash Flows | IRR |
| 0 | -$95,000.00 | 12.08% |
| 1 | $18,000.00 | |
| 2 | $18,000.00 | |
| 3 | $18,000.00 | |
| 4 | $18,000.00 | |
| 5 | $18,000.00 | |
| 6 | $18,000.00 | |
| 7 | $18,000.00 | |
| 8 | $32,500.00 | |
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