Question

A parking structure that yields $3000 of benefit per year from year 1 to year 9. The cost for this project is $10,000 year 0 and $2,000 year 1. Calculate NPV using discount rate of 10%

A wastewater treatment plant that would yield $800 benefit per year forever. The cost for this project is 7500 in year 0. Calculate using NPV discount rate of 10%

Answer 1

1.

For Parking Structure,

Initial Cost in Year 0 = 410,000

Cost in Year 1 = $2,000

Benefit from Year 1 to Year 9 = $3,000 per year

Net Cash flow in Year 1 = 3000 - 2000 = $1,000

Discount rate = 10%

So,

NPV = $5,624.18

2.

For Wastewater treatment plant,

Initial Cost = $7,500

Discount Rate = 10%

Perpetual annual benefit = $800

So,

PV of Perpetuity = Annual Benefit/Discount Rate

PV of Perpetuity = 800/(0.10)

Present Value = $8,000

So,

NPV = -7500 + 8000

NPV = $500