Suppose a project required an initial investment of $\$200$ with the following cash flows in years 1, 2, and 3: $\$$160, $\$$150, $\$$140. $R=8\%$. What is the project's NPV?
$ NPV = CF_0 + \dfrac{CF_1}{(1+R)}+ \dfrac{CF_2}{(1+R)^2}+ \dfrac{CF_3}{(1+R)^3} $
$ NPV = - \$200 + \dfrac{\$160}{(1+0.08)}+ \dfrac{\$150}{(1+0.08)^2}+ \dfrac{\$140}{(1+0.08)^3} $
$ NPV = \$187.88 $
NPV > 0 ; Accept the project.$ NPV = - \$200 + \dfrac{\$160}{(1+0.10)}+ \dfrac{\$150}{(1+0.10)^2}+ \dfrac{\$140}{(1+0.10)^3} $
$ NPV = \$174.60 $
Suppose a project required an initial investment of $\$200$ with the following cash flows in years 1, 2, and 3: $\$$160, $\$$150, $\$$140. What is the project's IRR?
$ 0 = CF_0 + \dfrac{CF_1}{(1+IRR)}+ \dfrac{CF_2}{(1+IRR)^2}+ \dfrac{CF_3}{(1+IRR)^3} $
Using a financial calculator:Suppose a project required an initial investment of $\$200$ with the following cash flows in years 1, 2, and 3: $\$$160, $\$$150, $\$$140. $R=8\%$. What is the project's PI?
$ \sum_{t=1}^{T} \dfrac{CF_t}{(1+R)^t} = \dfrac{\$160}{(1+0.08)}+ \dfrac{\$150}{(1+0.08)^2}+ \dfrac{\$140}{(1+0.08)^3} $ $=\$387.88$
$|CF_0| = \$200$
$PI= \dfrac{\$387.88}{\$200}$$=1.94$