Answer to Question #208919 in Financial Math for Sakib

Question

Ajeet Construction Ltd is planning to take a project which initial cash outflow is 100000.The

expected cash inflows from this are tk 40000, tk25,000, tk 20000,tk 35,000, & tk.35000.

Calculate the NPV & IRR of this project, when rate of cost of capital is 15%.

Answer 1

$NPV = - 100,000 + 40000/1.15 + 25,000/1.15^2 + 20,000/1.15^3 + 35,000/1.15^4 + 35,000/1.15^5 = 4,249.07.$

IRR is cost of capital at which NPV = 0.

As NPV > 0, then the project should be accepted, and IRR > 15% and approximately is 16.4%.