Question

A project will continue for 5 years with expected net cash flow of $18,256 per year...

A project will continue for 5 years with expected net cash flow of $18,256 per year over its life. Required rate of return from this project is 12%. The project requires initial investment of $53,448.

Using the above data, calculate the

  • Net Present Value
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Homework Answers

Answer #1

Net Present Value Calculation:

Present value foe each year's cash flow = Cash flow for each year/(1+ rate of return)^time

PV(t=1) = 18256/(1+0.12)^1

PV(t=2) = 18256/(1+0.12)^2

PV(t=3) = 18256/(1+0.12)^3

PV(t=4) = 18256/(1+0.12)^4

PV(t=5) = 18256/(1+0.12)^5

Rate of Return 12%
Years 0 1 2 3 4 5
Cashflow -53448 18256 18256 18256 18256 18256
PV -53448 16300 14553.57 12994.26 11602.02 10358.94

So, Net Present Value =

NPV = -initial Investment + Sum of [Present Values of all cash inflows]

NPV = -53448 + 65808.79 = 12360.79

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