# Need help in Present Value and Investment Appraisal problem question

• May 2nd 2011, 01:41 AM
Need help in Present Value and Investment Appraisal problem question
MTG is considering replacing part of its computer network with the latest equipment. The relevant costs of the project and the corresponding savings are given below.

Year = 0
Net cash flow (\$) = -100,000

Year = 1
Net cash flow (\$) = 20,000

Year = 2
Net cash flow (\$)= 30,000

Year = 3
Net cash flow (\$) = 40,000

Year = 4
Net cash flow (\$) = 50,000

Year = 5
Net cash flow (\$) = 20,000

If the current cost of interest in 12% per annum on projects of this type. Calculate the net present value of the project and comment on the course of action to be taken.
Obtain also the NPV for a cost of interest of 20% and thus estimate the Internal Rate of Return.

• May 2nd 2011, 02:04 AM
SpringFan25
define i = interest rate = 0.12

multiply each cashflow by (1+i)^{-t} where t is the year in which the cashflow occurs. Add the results up, this is the Net present value.

here are the first few cashflows:
http://quicklatex.com/cache3/ql_e72b...0596d10_l3.png
• May 2nd 2011, 02:55 AM
Quote:

Originally Posted by SpringFan25
define i = interest rate = 0.12

multiply each cashflow by (1+i)^{-t} where t is the year in which the cashflow occurs. Add the results up, this is the Net present value.

here are the first few cashflows:
http://quicklatex.com/cache3/ql_e72b...0596d10_l3.png

Hi is the method u give same as PV = V/(1+ i)^t ?
Coz if i used your method, the equal is not the same with the method given. So which method should i use? Yours or the above?
• May 2nd 2011, 03:10 AM
SpringFan25
if "V" is the size of the cashflow, then your formula is the same as mine. Show your calculations if you think they're different