Question

3. A project costs $500,000 today. It will provide annual cash flows of $40,000 for the first five years (years 1-5) and $50,000 for the following ten years (years 6-15). The discount rate use should be 8%. Find the project’s NPV?

Can someone explain how to enter this into a TI-83 calculator?

Answer 1

Ans.	Year	Cash inflows	PV @ 8%	PV of cash inflow
	1	$40,000	0.926	$37,037
	2	$40,000	0.857	$34,294
	3	$40,000	0.794	$31,753
	4	$40,000	0.735	$29,401
	5	$40,000	0.681	$27,223
	6	$50,000	0.630	$31,508
	7	$50,000	0.583	$29,175
	8	$50,000	0.540	$27,013
	9	$50,000	0.500	$25,012
	10	$50,000	0.463	$23,160
	11	$50,000	0.429	$21,444
	12	$50,000	0.397	$19,856
	13	$50,000	0.368	$18,385
	14	$50,000	0.340	$17,023
	15	$50,000	0.315	$15,762
	Total present value of cash inflows			$388,047
	Net present value = Present value of cash inflows - Initial investment
		$388,047 - $500,000
		-$111,953	(rounded)
	*Calculation of PV @ 8%
	Year		PV @ 8%
	1	1 / (1 + 0.08)^1	0.926
	2	1 / (1 + 0.08)^2	0.857
	3	1 / (1 + 0.08)^3	0.794
	4	1 / (1 + 0.08)^4	0.735
	5	1 / (1 + 0.08)^5	0.681
	6	1 / (1 + 0.08)^6	0.630
	7	1 / (1 + 0.08)^7	0.583
	8	1 / (1 + 0.08)^8	0.540
	9	1 / (1 + 0.08)^9	0.500
	10	1 / (1 + 0.08)^10	0.463
	11	1 / (1 + 0.08)^11	0.429
	12	1 / (1 + 0.08)^12	0.397
	13	1 / (1 + 0.08)^13	0.368
	14	1 / (1 + 0.08)^14	0.340
	15	1 / (1 + 0.08)^15	0.315