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Investment appraisal – Discounted cash flow techniques

Question 4

NPV

A project has the following information: Purchase of asset at the start of the
project $120,000. Sale of asset at the end of the project $25,000. Depreciation
per each year of the five year project $19,000. Contribution per annum
$40,000. Incremental fixed costs per annum $10,000.

Calculate the NPV of the project.

Year $ Discount PV
factors 10%

t0 (120,000) 1 (120,000)
t1 30,000 0.909 27,270
t2 30,000 0.826 24,780

t3 30,000 0.751 22,530

t4 30,000 0.683 20,490
t5 55,000 0.621 34,155
NPV 9,225

NB: remember to use relevant cash flows.

Illustrations and further practice

Now try TYU questions 3 and 4 from Chapter 3

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