Question

compute the NPV of each of the following cash inflows:

a. $22,900 received at the end of 15 years. The discount rate is 8 percent.

b. $6,640 received at the end of four years and $16,400 received at the end of eight years. The discount rate is 10 percent.

c. $1,680 received annually at the end of each of the next seven years. The discount rate is 7 percent.

d. $56,250 received annually at the end of each of the next three years and $74,000 received at the end of the fourth year. The discount rate is 3 percent.

(Round discount factor(s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

Answer a.

Payment received at the end of 15 years = $22,900
Discount rate = 8%

NPV = $22,900 * PVIF(8%, 15)
NPV = $22,900 * 0.315
NPV = $7,213.50

Answer b.

Payment received at the end of 4 years = $6,640
Payment received at the end of 8 years = $16,400
Discount rate = 10%

NPV = $6,640 * PVIF(10%, 4) + $16,400 * PVIF(10%, 4)
NPV = $6,640 * 0.683 + $16,400 * 0.467
NPV = $12,193.92

Answer c.

Annual Payment = $1,680
Period = 7 years
Discount Rate = 7%

NPV = $1,680 * PVIFA(7%, 7)
NPV = $1,680 * 5.389
NPV = $9,053.52

Answer d.

Annual Payment for next 3 years = $56,250
Payment at the end of year 4 = $74,000
Discount rate = 3%

NPV = $56,250 * PVIFA(3%, 3) + $74,000 * PVIF(3%, 4)
NPV = $56,250 * 2.829 + $74,000 * 0.888
NPV = $224,843.25