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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

please sent me irr formula

tu yr thore se calculton kr ke dekha do

aap apni calculation share karen....discuss kr laitay hen .. learning b ho jeygi...

Please note, I already have passed this subject


I recalculated all and find negative NPV for both machines and low IRR for both machines

amir ager first npv lower rate me 11% or irr me second rate is 12% ho to. dono bhot machine a or b ka irr lag bhag equal ho jata hai. kiya ye thik hai

your question is not clear

I think she is confusing with the concepts of the topics in question. 

acha to ap clear kr do. sir faizan 

Sorry, If you got mind. Nobody can clear you unless you express the area of the problem quite brilliantly.

faizan aa gye hain ayesha

ap ka ab koi bhi masla nahi rahy ga

he will solve ur all problems :)

ab fikar ki koi bat hi nahi ha ap k liye

o really let see. wot he ll do nd how to solve ????


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