##### Calculating the NPV actual and NPV projected

 Accounting Tutor: None Selected Time limit: 1 Day

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.

May 24th, 2015

cash outflow =250,000he

cash inflow in the next five years=90,000*5=450,000

the cash inflow after the reduction 70,000*5=350,000

the bonus that that would be noticed in the project is

450,000-350,000=\$100,000

May 24th, 2015

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?

May 24th, 2015

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May 24th, 2015
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May 24th, 2015
May 28th, 2017
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