Question

A firm wants to start a project. A team of financial analysts estimated the following cash...

A firm wants to start a project. A team of financial analysts estimated the following cash flows

year                  cash flow

0 -$100,000

1 55,000

2 43,000

3 45,000

Suppose that the discount rate (interest rate) is 12%. The NPV is

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Answer #1

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

  • Press the CF button.
  • CF0= -$100,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 12%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 12% discount rate is $15,416.59.

In case of any query, kindly comment on the solution.

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