Net Present Value and Beta Factor

[christopheb]

Thanks for the tip, I have tried my best to figure out a solution, is there any chance that someone can please comment on the following calculations

SOLUTION
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A) NET PRESENT VALUE

Beta factor will be used to calculate cost of capital to come up with NPV.
Cost of capital = 4 + (10-4) x 1.33 = 12%

(12% discounted factor)

Capital Cash inflows £3895 (750+750+900+900+595)

Add depreciation amount to NP's
Number of years (5) = £500*5=2500
(3895-2500)= 1395

Yr 1 Present Value = 750x1/1.12 = 667.5
Yr 2 Present Value = 750x1/ (1.12) ^2 = 600
Yr 3 Present Value = 900x1/ (1.12) ^3 = 639
Yr 4 Present Value = 900x1/ (1.12) ^4 = 576
Yr 5 Present Value = 595x1/ (1.12) ^5 = 339.15

Present Value of Cash inflows = (667.5+600+639+576+339.15) = 2821.65
Capital outlay = 1395
Net Present Value = (2821.65-1395) = <b>1426.65</b>

(20% discounted factor)

Capital Cash inflows £3895 (750+750+900+900+595)

Add depreciation amount to NP's
Number of years (5) = £500*5=2500
(3895-2500)= 1395

Yr 1 Present Value = 750x1/1.2 = 619.5
Yr 2 Present Value = 750x1/ (1.2) ^2 = 512.25
Yr 3 Present Value = 900x1/ (1.2) ^3 = 522
Yr 4 Present Value = 900x1/ (1.2) ^4 = 432
Yr 5 Present Value = 595x1/ (1.2) ^5 = 238

Present Value of Cash inflows= (619.5+512.25+522+432+238) = 2323.75
Capital outlay = 1395
Net Present Value = (2323.75-1395) = <b>928, 75</b>

B) The Internal Rate of Return

Internal Rate of return formula
IRR = d1 + [n1 / (n1 + n2) x S]
Where d1 = Lower dcf, d2 = higher dcf, n1 = NPV at lower dcf, n2 = NPV at higher dcf, S = d2 - d1

Net Present value@ 10% = 1426.65
Net Present value@ 20% = 928.75
IRR = 10 + [1426.65 / (1426.65 + 928.75) x 10] = <b>16, 05% (about)</b>