NPV & IRR

[FA]

Please help.

I want to evalue the returns of a series of investments as shown below.
2008 2009 2010 TOTAL IR = 0.05
INCR Sales $166,873 $813,114 $1,266,398 $2,246,385
Invest. $(105,500) $(164,150) $(170,609) $(440,259)
TOTAL $61,373 $648,964 $1,095,790 $1,806,126

I'm not sure if I should use NPV, IRR or PV. When I use the formula I also
have problems understanding the results.

Looking forward to your suggestions.

FA

 

[Fred Smith]

What is it you want to evaluate? What does "TOTAL IR" mean? Where do the
Invest amounts come from? Are they the return on investment in each year? If
so, what was the original amount invested? What results are you looking for?

Regards,
Fred.

 

[FA]

It is an additional cost that would generate additional sales. I want to use
NPV and IRR to estimate the feasablity of this investment.

 

[Fred Smith]

As your reply is very sparse, I can only point you in the right direction.
To calculate IRR, you need the following:

1. The original investment.
2. The returns on this investment.

So in one range, create the above. Make sure the investment, and the
returns, have opposite signs. Then feed this range to IRR. Let us know if
that is what you are looking for.

Regards,
Fred.

 

[FA]

I have investments every year. These are the payment to the original
investment.
I have three sales estimates (only marginal or additional sales accounted to
the increase on the resource).

These are the investments:
2008 2009 2010 Total
Invest. $(105,500) $(164,150) $(170,609) $(440,259)


These are the additional sales:

2008 2009 2010 Total
INCR Sales $166,873 $813,114 $1,266,398 $2,246,385

I'm using this data in IRR but it comes with an error. Maybe is the guess
I'm missing...

Thanks ,

FA

 

[Fred Smith]

The IRR error has nothing to do with the guess. It's that your data does not
match the normal IRR pattern, which is returns on investment over time. In
your case, the returns are immediate.

With your data, you are saying that you invest $105,500 at the beginning(?)
of 2008, and get a return by the end of 2008 of $166,873. You get your
investment back, plus $61,373, right? In that case, your return is $61,373,
not $166,873. So your return on the 2008 investment is 61373/105500 =
58.17%.

You can do the same with the other annual investments.

If you really want do to an IRR calculation, you need to determine the
timing of the cash flows. For simplicity, let's assume they happen at the
beginning (or the end) of the year. Then your cash flows are:

2008: -105500
2009: 2723 (166873 - 164150)
2010: 642505 (813114 - 170609)
2011: 1266398

Give this data to IRR, and you will find a 216% return on investment.

If your cash flows are irregular, then you want the XIRR function.

Regards,
Fred.