Question

Tesla is planning to produce an all-electric family car and expects the following cash flows (in $ million) at the end of each year:

Year    0 1 2   3 4 5
Cash flow   -160   10   20   40   80   90

The required return for this project is 14%.

1.Create an Excel spreadsheet with the present value of each cash flow. What is the project's NPV (in $ million)?

2. There's an easier way: What is the NPV using Excel's NPV() function? Note that Excel's NPV function discounts all the cash flows in the range, even the first one.

Answer 1

1. The Table showing present values of cashflows of each year and NPV as the sum of present value of cashflows of each year is given below

Year	0	1	2	3	4	5	NPV
Cash flow	-160	10	20	40	80	90
Present value of Cashflows	-160	8.77	15.39	27.00	47.37	46.74	-14.73

So, the NPV of the project is -$14.73 million

2. NPV function can be used like

=Cashflow in year 0+NPV(14%,10,20,40,80,90)

= -160+NPV(14%,10,20,40,80,90)

with values soft coded as per reference cell no.