Question

Compute the NPV of the following cash inflows:

a. $37,750 received annually at the end of years 1 through 5 followed by $29,500 received annually at the end of years 6 through 10. The discount rate is 13 percent.

b. $50,500 received annually at the end of each of the next three years and $68,750 received at the end of the fourth year. The discount rate is 6 percent

Answer 1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=37750/1.13+37750/1.13^2+37750/1.13^3+37750/1.13^4+37750/1.13^5+29500/1.13^6+29500/1.13^7+29500/1.13^8+29500/1.13^9+29500/1.13^10

=$189091.34

NPV=Present value of inflows-Present value of outflows

=$189091.34(Approx).

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=50500/1.06+50500/1.06^2+50500/1.06^3+68750/1.06^4

=$189443.54

NPV=Present value of inflows-Present value of outflows

=$189443.54(Approx).