MGT201 - Financial Management GDB NO.1 Solution Due Date: 14th May Fall 2014

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Net present value (NPV) is calculated based on the expected returns and the expected costs of an investment, where these expected returns and expenses are discounted by a rate that reflects inflation and opportunity costs. The process NPV / IRR analysis enables you to determine the net present value of a process. As parameters for this analysis, you can specify initial cost, expected process volume (as an absolute value), number of periods (where each period is one year), and annual discount rate. The analysis then uses the average cost and revenue determined from the process simulation results to calculate the expected future net profits.
In addition to the net present value, this analysis also determines the internal rate of return (IRR) for the process. The internal rate of return is the interest rate received for an investment, based on anticipated expenses and income that will occur at regular periods. IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a zero net present value.