Question

This question is based on the following cash flows

C0=$10,000	I1=$2,000	I2=$2,000	I3=$3,000	I4=$3,000	I5=$2,500		L=$1,000
0	1	2	3	4	5

C: Cost, I: Income, L: Salvage

The escalation rate is 10% per year in this example.

Calculate the NPV of this investment assuming an escalated dollar minimum rate of return of 8%

Answer 1

Year	Cash flow	PVIF@8%	Present value
0	$    (10,000)	1.00000	-$10,000.00
1	$        2,000	0.92593	$1,851.85
2	$        2,000	0.85734	$1,714.68
3	$        3,000	0.79383	$2,381.50
4	$        3,000	0.73503	$2,205.09
5	$        3,500	0.68058	$2,382.04
Net present value			$535.16