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FIN622 - Corporate Finance

ABC Company is considering the acquisition of a machine to improve its production. The company has to make a choice between two types of machine A and B. Each machine will have a 4-year life with no salvage value.
Cost of capital of the firm is 14%. Initial investments required to purchase and install the machines A and B, are PKR 28,700 and PKR 27,050 respectively. Machine A will generate an inflow of PKR 10,000 each year while Machine B is expected to generate cash inflows in the following manner.

Year          Cash Inflows (PKR)
1               11,000
2               10,000
3               9,000
4                8,000


Calculate NPV and IRR for both options. Which machine should be preferred and why?

For calculating IRR you are required to use “Trial and Error Method” along with “Interpolation Technique/Formula”. In this particular regard, you are advised to consult PPT slideshow “Finding IRR is no more difficult” uploaded in the lesson contents of Lesson # 10.

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Replies to This Discussion

ya bohat bohat achay hain sab ki help karna farz ha in par

ashi ning kab join ki tum na?

ap kon ho me ne ning kab se join ki hai per mam yahan assignment me bt kr rahy han ham  chatting ni. 

guyz is my calculation bhot npv of machine A and B are negitve A=-873 AND B=-93

Same here

and IRR

Machine A = 12.85%

Machine B = 13.86%

Both are in this scenario both machines are not feasible.

anyone with different result? 

For Machine A

NPV = 438 PKR

IRR = 15.1%

For Machine B

NPV = 1106PKR

IRR = 16.4%

Amir Bro May B There Will Be Some Calculation Mistake With Mine. But Similar Close To Your IRR. :)

somebody help me plz kindly help me.

Mjhe kuch samj nai a a ra.

IRR and NPV ka formula kia hai?

IRR = a + {[A/(A-B)] * (b-a)}

formula use hoe ga


a = lower discount rate

b = higher discount rate

A = NPV obtained with discount rate a

B = NPV obtained with discount rate b....

NPV = (investment) + (CF1/(1+k)^1) + (CF2/(1+k)^2)+(CF3/(1+k)^3)+(CF4/(1+k)^4)


investment = initial investment (both are given in assignment)

CF = Cash inflows for 4 year

k = 14% 


awais how to caculate npv my ans is negtive bhot machines

We Always Take Initial Investment -ve... (investment) means -investment


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