IRR vs NPV

by Char
(Salinas)

Please help me to solve this IRR NPV problem.


The investment cost is $35,000
The cost of money is 7.0%
I am amortizing the life of the equipment for 3 years.
the expected cost savings per year in salary's is $23836.00

Using these variables how does the formula for NPV and IRR look. I've tried the excel calculators but they are confusing to me please help.

Answer:

Dee Reavis

Using IRR Calculator here and NPV Calculator here NPV = $27,553 and IRR = 46.4%.

The NPV formula is NPV = -$35,000 + $23,836/(1.07) + $23,836/(1.07)^2 + $23,836/(1.07)^3.

The IRR formula is 0 = -$35,000 + $23,836/(1+i) + $23,836/(1+i)^2 + $23,836/(1+i)^3.

When NPV=0 then IRR = i.

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NPV and IRR

by lala Voka
(Free State)

A revenue of 350,000,000 is the expected annual profits of owning a certain jet plane. The cost of acquisition is 3,600,000,000. The company must pay one quarter of the cost now and the remaining 3 quarters to be paid two years from now. The company is planning to use the plane for 8 years after which it is to be sold for one half of the original price.

what is the discount pay back?
what is the net present value if cost of capital is 14%?
what is the IRR?
should the project be undertaken or not?

Answer

The NPV is -992,267,300 @ a 14% discount rate.

The IRR is 3.67%

A discounted payback period can not be calculated unless the discount rate is less than the IRR.

The project should not be undertaken because you have a negative NPV and the IRR although it is positive is very low.


Calculating NPV
Calculating IRR

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IRR NPV

by Dr. H. K. Rathod
(Gandhinagar,Gujarat,India)

If the Cost of Capital is 12% and the Internal Rate of Return is also 12%, what will the Net Present Value be?

Comments for IRR NPV

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Jan 22, 2010
IRR Definition
by: Dee Reavis

The definition of IRR can be made in terms of NPV. When the NPV = 0, the IRR of the project is equal to the discount rate used in calculating the NPV.

This is in fact the way that Internal Rate of Return Return is found. An iterative method is used with the discounted cash flow to change the discount rate by small amounts step by step until NPV = 0. When NPV = 0, then IRR = discount rate.

Present Value Click Here


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IRR and NPV

by Tracy Johnson
(Columbia, SC)

expected cash flow:
year Cash Flow
o -500,000
1 100,000
2 110,000
3 550,000

Discount rate 0, what is the net present value?

Discount rate 4, what is the net present value?

Discount rate 8, what is the net present value?

Discount rate 10, what is the net present value?

What is the internal rate of return?

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Mar 23, 2010
IRR and NPV Solution
by: Dee Reavis

The answer to this problem can easily be calculated from the calculators on this website.

http://www.business-analysis-made-easy.com/NPV-Calculator.html

http://www.business-analysis-made-easy.com/Calculating-Internal-Rate-Of-Return.html

The answers are as follows:

NPV

0% 260,000
2% 217,691
4% 179,618
6% 145,311
8% 114,359
10% 86,401

IRR = 17.86%


Go try it yourself!

Especially try the IRR percentage in the NPV calculation. It will be within rounding error of zero. (Recall that the definition of IRR is when the NPV=0)

Present Value Click Here!


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