A company is considering the purchase of a copier that costs $5000. Assume a cost of capital of 10 percent and the following cash flow schedule:
Year1：$3000
Year2：$2000
Year3：$2000
Determine the projects NPV and IRR.（ ）
To determine the NPV, enter the following:
PV of $3000 in year 1=$2727, PV of $2000 in year 2=$1653, PV of $2000 in year 3=$1503. NPV=($2727+$1653+$1503)-$5000=883.
You know the NPV is positive, so the IRR must be greater than 10%. You only have two choices, 15% and 20%. Pick one and solve the NPV. If it is not close to zero, then you guessed wrong; select the other one. [3000/(1+0.2)1+2000/(1+0.2)2+2000/(1+0.2)3 ]-5000=46.This result is closer to zero (approximation) than the $436 result at 15%. Therefore, the approximate IRR is 20%.