Question

Consider the following cash flows:

Year	Cash Flow
0		–$	34,000
1			15,100
2			16,600
3			12,500

a.	What is the NPV at a discount rate of zero percent? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b.	What is the NPV at a discount rate of 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What is the NPV at a discount rate of 18 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What is the NPV at a discount rate of 28 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

The NPV is computed as shown below:

= Initial investment + Present value of future cash flows

Present value is computed as follows:

= Future value / (1 + r)ⁿ

a. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 + $ 16,600 + $ 12,500

= $ 10,200

b. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.08 + $ 16,600 / 1.08² + $ 12,500 / 1.08³

= $ 4,136.21 Approximately

c. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.18 + $ 16,600 / 1.18² + $ 12,500 / 1.18³

= - $ 1,673.64 Approximately

d. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.28 + $ 16,600 / 1.28² + $ 12,500 / 1.28³

= - $ 6,110.82 Approximately

Feel free to ask in case of any query relating to this question