Question

Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project? Year Project

0 ($11,368,000)

1 $ 2,187,590

2 $ 3,787,552

3 $ 3,250,650

4 $ 4,115,899

5 $ 4,556,424

Round to two decimal places

Answer 1

NPV is net present value of all future cashflows.

There is a standard formula for discounting future values into present values. Pls. refer below:

Lets take discount rate of 13.8%; All units in $

Year	Cashflow	Present value formula	Present value formula with nos	Present value
0	-11368000	-	-	-11368000
1	2,112,590	cash flow / (1+ discount rate)^n	2112590/(1+13.8%)^1	1856405.97
2	3,787,552	cash flow / (1+ discount rate)^n	3,787,552/(1+13.8%)^2	2924651.21
3	3,275,650	cash flow / (1+ discount rate)^n	3,275,650/(1+13.8%)^3	2222648.08
4	4,115,899	cash flow / (1+ discount rate)^n	4,115,899/(1+13.8%)^4	2454119.24
5	4,556,424	cash flow / (1+ discount rate)^n	4,556,424/(1+13.8%)^5	2387332.01

Sum of all present value is $ 477156.51