Question
In: Accounting
You are a director of a small firm that intent to invest 1 000 000 in...
You are a director of a small firm that intent to invest 1 000 000 in a new mobile app for it's operation and a quarter of of millions rand of the four year of its lunch. What will be the net present value if the firm anticipates inflow of 7 00 000 each for five years. The rate of return is 12%. Do you think this is viable project and why?. Show all calculations
Solutions
Expert Solution
As per the question we take out the following details:
Outflow at 0 Year = 1,000,000 rand
Outflow at 4 Year = 250,000 rand
Inflow of 700,000 each for 5 years.
Net Present Value (NPV) = Present Value of Inflows – Present Value of Outflows
PV Inflows = 
= 2,523,343.34
PV Outflows = 
= 1,158,879.52
NPV = PV Inflows – PV Outflows
= 2,523,343.34 - 1,158,879.52
= 1,364,463.82
Conclusion:
The Project must be accepted as the NPV is positive.
The general rule for decision making is
NPV +ve then Accept
NPV –ve then Reject
NPV = 0 then we are indifferent.
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