Hi guys, Here is a problem I’m trying to solve, but I’m not sure why I’m getting a wrong answer? Thought I’d try to ask some of you finance gurus out there? (ie, I’m getting -9951 NPV by discounting the CFs): Develop a three year projection based upon the assumptions below. What is the NPV and ROI? a. Yearly incremental revenue of $75000 b. Yearly incremental cost of $25000 c. Capital Investment at $120,000 in year 1, $20,000 in year 2, and $15,000 in year 3 d. Investment income is currently earning 6%
N0- (120) N1- 50 N2- 20 N3- 35 NPV=? IRR=? Hurdle IRR 6% Part c. of your question is kind of confusing, are you adding capital investment to incremental cost and subtracting that from incremental rev?
Exactly! By reading it, I thought that was confusing too! It reads that there is no initial investment in year 0. $120K is in year 1 so my approach is adding capital costs to incremental costs? Is that right?
add capital investment to incremental cost… I would assume your recover your capital in year 3.