Net Present Value

Question

Big Steve's makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $110,000 and will generate net cash inflows of $17,000 per year for 11 years.

a. what is the projects NPV using a discount rate of 11%?
b. what is the projects NPV using a discount rate of 17%?
What is this projects internal rate of return?

Answer 1

You want NPV, using

NPV(.11,11) = -110000 + sum(t=1 to 11) 17000/(1+.11)^t
= -110000 + 105510.76 = -4489.24

NPV(.17,11) = -110000 + 82219.03 = -27780.97

the IRR is r where

sum(t=1 to 11) 17000/(1+r) = 110000
r = 10.08%