A project has a capital outlay of $12.75m and will yield future cash flows of $3m per annum for the next 10 years. The required rate of return is 12%. Ignore taxation. Evaluate the project using the Net Present Value and Internal Rate of Return approach.

NPV $4.20  million(positive)

IRR 19.60% ( greater than the cost of capital of 12%)

Explanation:

The net present value of the project is the present value of future cash flows discounted at the required rate of return of 12% minus the initial investment outlay

Present value of a future cash flow=future cash flow/(1+r)^n

r=required rate of return=12%

n is the year in which the cash flow is expected, it is 1 for year 1 cash flow, 2 for year 2 and so on.

NPV=$3/(1+12%)^1+$3/(1+12%)^2+$3/(1+12%)^3+$3/(1+12%)^4+$3/(1+12%)^5+$3/(1+12%)^6+$3/(1+12%)^7+$3/(1+12%)^8+$3/(1+12%)^9+$3/(1+12%)^10-$12.75

NPV=$4.20  million

The internal rate of return is the discount at which the present value of the future cash flow and the initial outlay are the same using IRR excel function

Yearscash flows

0($12.75)

1$3  

2$3  

3$3  

4$3  

5$3  

6$3  

7$3  

8$3  

9$3  

10$3  

IRR(B2:B12)19.60%

well based on 99% of parents have dont something wrong to there kids mabey even stole money from you so based on maney inccedent i would choose guilt

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