Answer to Question #117927 in Finance for jiten shreshtha

Question #117927
Evaluate the following project with the help of ERR for external
reinvestment rate 20% per year and MARR 18% per year. 7
Initial investment =Rs. 4,000,000
Expected life =8 Years
Salvage value =Rs. 50,000
Annual expenses =Rs. 160,000
Annual revenue =Rs. 320,000
1
Expert's answer
2020-05-26T11:21:21-0400

"NPV1=-4,000,000+\\frac{320,000-160,000}{1+0.2}+\\frac{160,000}{(1+0.2)^2}+\\frac{160,000}{(1+0.2)^3}+\\frac{160,000}{(1+0.2)^4}+\\frac{160,000}{(1+0.2)^5}+\\frac{160,000}{(1+0.2)^6}+\\frac{160,000}{(1+0.2)^7}+\\frac{160,000-50,000}{(1+0.2)^8}=-3,397,682.83"

"NPV2=4,000,000*(\\frac{1.18}{1.2})^8=3,496,762.06"

"NPV1=3,397,682.83"

"NPV2=3,496,762.06"

"NPV1<NPV2" project is not effective


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