Question

Net Present Value ApproachB7:H23
Time Period	0	1	2	3	4	5
Cash Flow
Purchase Price	$      (70,000)
Labor Savings		20,000	20,000	20,000	20,000	20,000
Paint Savings		2,000	2,000	2,000	2,000	2,000
Maintenance	-1000	(1,000)	(1,000)	(1,000)	(1,000)	(1,000)
Residual Value	5,000					5,000
Total Cash Flow	$      (70,000)	21,000	21,000	21,000	21,000	26,000
PV Factor	1	0.893	0.797	0.712	0.636	0.567
Total Cash Flow	$      (70,000)	$        18,753	$      16,737	$        14,952	$       13,356	$        14,742
Required Rate of Return	12%=0.12
NPV	$          8,540		NPV Using Excel (show formula):			$          8,540
IRR			IRR Using Excel (show formula): Can you please write out how to find IRR? Thank you so much

Answer 1

Net Present Value ApproachB7:H23
Time Period	0	1	2	3	4	5
Cash Flow
Purchase Price	-70,000
Labor Savings		20,000	20,000	20,000	20,000	20,000
Paint Savings		2,000	2,000	2,000	2,000	2,000
Maintenance	-1000	-1,000	-1,000	-1,000	-1,000	-1,000
Residual Value	5,000					5,000
Total Cash Flow	-70,000	21,000	21,000	21,000	21,000	26,000
PV Factor	1	0.893	0.797	0.712	0.636	0.567
Total Cash Flow	-70,000	18,753	16,737	14,952	13,356	14,742
Required Rate of Return	12%
NPV	8,540		NPV Using Excel (show formula):			$          8,540
IRR	16.68%		IRR Using Excel (show formula): Can you please write out how to find IRR? Thank you so much
Formula of IRR = IRR(C11:H11)
Without formula we can calculate as below,
IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero
	CALCULATION OF THE Cash Flow OF THE PROJECT
	Years	Cash Flows
	0	-$70,000
	1	$21,000
	2	$21,000
	3	$21,000
	4	$21,000
	5	$26,000
		Total
	CALCULATION OF THE IRR OF THE INVESTMENT
	First we calculate randomly present value with @ 16% discounting rate
	Years	Cash Flows	PVF @ 16%	Present Value
	0	-$70,000	1.0000	-$70,000
	1	$21,000.00	0.86207	$18,103
	2	$21,000.00	0.74316	$15,606
	3	$21,000.00	0.64066	$13,454
	4	$21,000.00	0.55229	$11,598
	5	$26,000.00	0.47611	$12,379
		Net Present Value =		$1,140.73
	With PVF with 16 % we are getting Positive =			$1,140.73
	so this is not an IRR of the investment
	Than we calculate randomly present value with @ 17% discounting rate
	Years	Cash Flows	PVF @ 17%	Present Value
	0	-$70,000	1.0000	-$70,000
	1	$21,000.00	0.85470	$17,949
	2	$21,000.00	0.73051	$15,341
	3	$21,000.00	0.62437	$13,112
	4	$21,000.00	0.53365	$11,207
	5	$26,000.00	0.45611	$11,859
		Net Present Value =		-$533.17
	With PVF with 17 % we are getting Negative =			-$533.17
	so this is not an IRR of the investment
	In the given case the pv with 16% is coming to postive means the present value is more
	then 16 % but with 17 % Present value cash flow become negative so the prese-nt value
	is between 16% and 17 %
	So the differecne in both % net present value is =			$1,140.73	-	-$533.17
	Total is become =			$1,673.91
	So , the difference % =			$1,140.73	"/"By	$1,673.91
	So , the difference % =			0.68
	So, the IRR =			16.68%