How to calculate a projects returns?



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If an investment opportunity came to you and you had to invest Rs. 20 lakhs (2 million) in a company. The company guaranteed you steady cash flow of Rs. 5 lakhs (500,000) every year over the next 5 years. Assuming discount rates of 15% should you make this investment?

if the discount rate is 5%-this is write ans

please expalin me once again

2 Answer(s)


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Yashodha. This question focuses on calculating NPV of an investment in the project.
Cash inflow is Rs.20 lakhs
Cash outflow is Rs. 5 lakhs every year for 5 years
Discount Rate is 15%
if you lay out these numbers is excel as -25,00,000, 5,00,000, 5,00,000, 5,00,000, 5,00,000, 5,00,000, and 15%. Then use the excel formula =NPV(rate,.......) you should be able to get the answer. Is the clear?

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You will notice that at 15% the NPV is negative indicating that it is a bad investment. At 5% you will notice that this project has a positive NPV and hence worth investing. The discount rate essentialy is a measure of how risky a project is.

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