The best method for evaluation of investment proposal is the net present value method or discounted cash flow technique. This method takes into account the time value of money. The net present value of project is equal to sum of present value of all the cash flows accociated with the project.
Suppose cash outlay= 10,00,000
And cash inflow are below mentioned:-
Year End Cash Inflows
6 80,000(Scrap Value)
NPV = Total Cash Inflows - Total Cash Outlay
= 13,72,000 – 10,00,000