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Find the NPV of an asset which costs $100,000, and is expected to generate net cash...

Find the NPV of an asset which costs $100,000, and is expected to generate net cash flows of $50,000 for each of the next three years. The discount rate is 12%. Indicate whether the asset should be purchased.

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Answer #1

Ans The Asset should be purchased since NPV is positive

Year Project Cash Flows (i) DF@ 12% DF@ 12% (ii) PV of Project A ( (i) * (ii) )
0 -100000 1 1                (1,00,000.00)
1 50000 1/((1+12%)^1) 0.893                     44,642.86
2 50000 1/((1+12%)^2) 0.797                     39,859.69
3 50000 1/((1+12%)^3) 0.712                     35,589.01
NPV                     20,091.56
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