Question

To the nearest dollar, what is the net present value of a replacement project whose cash flows are -$104,000; $30,000; $69,000; and $55,000 for years 0 through 3, respectively? The firm has decided to assume that the appropriate cost of capital is 10%.

Answer 1

Project A
Discount rate	0.1
Year	0	1	2	3
Cash flow stream	-104000	30000	69000	55000
Discounting factor	1	1.1	1.21	1.331
Discounted cash flows project	-104000	27272.73	57024.79	41322.31
NPV = Sum of discounted cash flows
NPV Project A =	21619.83
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor