Victor Holt had an investment proposal on his desk when the new system was implemented. The investment opportunity required a $250,000 initial cash outflow and was expected to return cash inflows of $90,000 per year for the next five years. Gaines desired rate of return is 10 percent. Mr.Holt immediately reduced the estimated cash inflows to $70,000 per year and recommended accepting the project. I am required to calculate the bonus for the $90,000/$70,000 projected earnings and I need help.
My instructor's notes stated that I had to first compute the NPV's of the actual $91,000 of the project earnings that really did happen and then compare that amount to the NPV of the projected earnings of the project of $90,000. Then take the difference between the two and multiply by 10%: can you help me figure this out?