Question

A company make investment with investment cost of Rp 300 billions. The cost of capital for...

A company make investment with investment cost of Rp 300 billions. The cost of capital for the investment is 10%. The investment will have an economic life of 4 years. Depreciation will be calculated using the straight-line method with no residual value. Information about accounting income or net income per year is in the following table:

Year

1

2

3

4

Net Income

Rp 30 billions

Rp 40 billions

Rp 50 billions

Rp 60 billions

Calculate Net Present Value (NPV)?

Business   Accounting   
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Answer #1

Annual depreciation = (300-0) / 4 years = Rp 75 billions

Cash inflows = Net income + depreciation

Year

1

2

3

4

 Total

Net Income

Rp 30 billions

Rp 40 billions

Rp 50 billions

Rp 60 billions
Ad: depreciation Rp 75 billions Rp 75 billions Rp 75 billions Rp 75 billions
Cash inflows Rp 105 billions Rp 115 billions Rp 125 billions Rp 135 billions
PVF @10% 0.909 0.826 0.751 0.682
Present value of cash inflow 95.45 94.99 93.88 92.07 Rp 376.38 billions
Less: Initial investment Rp 300 billions
Net Present Value (NPV) Rp 76.38 billions
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