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Investment Analysis: NPV and IRR Insights

This document presents a 5 year cash flow statement for a new project. It shows initial investments of $1.5M in working capital and $150k. Revenues are $1.6M each year while variable costs are $300k, fixed costs $700k, and depreciation $290k annually. Net profit each year is $217k with a salvage value of $50k in year 5. The net present value is $291,106.91 and internal rate of return is 19%, indicating the project should be accepted.

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Maha Rehman
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10 views1 page

Investment Analysis: NPV and IRR Insights

This document presents a 5 year cash flow statement for a new project. It shows initial investments of $1.5M in working capital and $150k. Revenues are $1.6M each year while variable costs are $300k, fixed costs $700k, and depreciation $290k annually. Net profit each year is $217k with a salvage value of $50k in year 5. The net present value is $291,106.91 and internal rate of return is 19%, indicating the project should be accepted.

Uploaded by

Maha Rehman
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Year 0 1 2 3 4 5

$
Initial Investment (1,500,000)
$
Working Capital (150,000)
$ $ $ $ $
Revenues 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000
$ $ $ $ $
Variable Cost (300,000) (300,000) (300,000) (300,000) (300,000)
$ $ $ $ $
Fixed Costs (700,000) (700,000) (700,000) (700,000) (700,000)
$ $ $ $ $
Depreciation (290,000) (290,000) (290,000) (290,000) (290,000)
$ $ $ $ $
EBIT 310,000 310,000 310,000 310,000 310,000
$ $ $ $ $
Income Taxes (93,000) (93,000) (93,000) (93,000) (93,000)
$ $ $ $ $
Net profit 217,000 217,000 217,000 217,000 217,000
$ $ $ $ $
Depreciation 290,000 290,000 290,000 290,000 290,000
$
Salvage Value 50,000
$
Working Capital 150,000
$ $ $ $ $ $
Net Cash Flow (1,650,000) 507,000 507,000 507,000 507,000 707,000
$ $ $ $ $ $
(1,650,000.00 452,678.5 404,177.3 360,872.5 322,207.6 401,170.7
PV of Cash Flow ) 7 0 9 7 9
$
NPV 291,106.91
IRR 19%

The company should go for the project at the IRR is higher than the cost of capital which means

that there is more return to this business. And the NPV is high and viable as well.

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