Find:- 

i) If the project is acceptable by NPV method considering discount rate as 10%. 

ii) For the same project, the discount rate by IRR method.

Given:

r = 10%

1. NPV (Net Present Value) Method

NPV = - CF/(1+r)^0 + CF/(1+r)^1 + CF/(1+r)^2 ..... CF/(1+r)^n

    = -10,00,000/ (1+0.10)^0 + 2,00,000/(1+0.1)^1 + 2,00,000/(1+0.1)^2 + 3,00,000/(1+0.1)^3 + 3,00,000/(1+0.1)^4 + 3,50,000/(1+0.1)^5

     = -10,00,000 + 181818.18 + 165289.25 + 225394.44 + 204904.03 + 217322.46

NPV = Rs - 5271.64

Therefore, the project is unacceptable as the present value is negative. It is not feasible.

2. IRR ( Internal Rate of Return) Method:

In IRR method rate of return is unknown. So we have to find the value of r for which the difference in the present value and its right hand side is 0

Present value = CF/(1+r)^1 + CF/(1+r)^2 ..... CF/(1+r)^n.

The present value of cash flow is Rs 10,00,000.

Assuming r= 8% and r=10% , we can generate a table as follows:

Now, present value for r=8% is Rs 53515.68 and for r=10% is Rs -5271.64. The actual value of IRR lies between the 2 values.

We can find the actual r by interpolation.

(R - 8 ) / (10 - 8 ) = (0 - (-5271.64)) / (53515.68 - (-5271.64))

R = 8.18 %