calculate NPV and IRR

and choose the best

Fort Formatting Table Styles Aligament Is internal Rate of Return B C D E Session Nine Tutorial F G 2 Example: What is the NPV (assuming a 6% discount rate) and the IRR for the following $750,000 investment? 3 4 Investment Year One Year Two Year Three Year Four Year Five 5 Initial Investment $ (750,000) 6 Projected Net Cash Flows $ 100,000 $ 110,000 $ 120,000 $ 130,000 $ 135,000 7 Residual Value (9x Net Cash Flows) $ $ $ $ $ 1,215,000 8 Analysis $ (750,000 $ 100,000 $ 110,000 $ 120,000 $ 130,000 $ 1,350,000 9 10 NPV (6% Discount Rate) $ (750,000) $1,404,764 $ 654,764 11 12 Internal Rate of Return 23.2% 13 Follow-Up Activity: Based on NPV and IRR, which investment (Option A or Option B) is more attractive? 14 Year One Investment Year Two Year Three Year Five Year Four 15 Option A 16 Initial Investment $ (1,250,000) $ 100,000 $ 110,000 $ 120,000 $ 130,000 135,000 17 Projected Net Cash Flows Daca o Ninth Cinn e 10 PI Type here to search Review View T - A Merge Center $ -% 9 28 Fort | A32 Internal Rate of Return D E F G B $ (1,250,000) $ $ $ (1,250,000) $ 100,000 $ $ 100,000 $ 110,000 $ $ 110,000 $ 120,000 $ $ 120,000 $ 130,000 $ $ 130,000 $ 135,000 1,215,000 1,350,000 16 Initial Investment 17 Projected Net Cash Flows 18 Residual Value (9x Net Cash Flows) 19 Analysis 20 21 NPV (6% Discount Rate) 22 23 Internal Rate of Return 24 25 Option B 26 Initial Investment 27 Projected Net Cash Flows 28 Residual Value (9x Net Cash Flows) 29 Analysis 30 31 NPV (6% Discount Rate) 32 Internal Rate of Return Year One Year Two Year Three Year Four Year Five Investment $ (750,000) $ $ $ (750,000) $ 95,000 $ $ 95,000 $ 100,000 $ $ 100,000 $ 105,000 $ $ 105,000 $ 110,000 $ $ 110,000 $ 120,000 1,080,000 1,200,000 e Type here to search