Question

I need help with this question- what formula should I use and how to apply it?

Using the cash flows below, what is the NPV of all the cashflows using an interest rate of 10% ?

• Now: - $120

• After 1 year: + $20

• After 2 years: + $90

• After 3 years: - $10

• After 4 years: + $30

• After 5 years: + $30

• After 6 years: + $30

• After 7 years: + $40

Answer 1

Answer:

NPV = Sum of PV of all cashflow

PV =CF/(1+r)^n

where CF=cash flow

r=10%

n=year in which cash flow occur

For Year 2

n=2

CF=$90

PV=90/(1+10%)^2=$74.38

Year	Cashflow	PV
0	-120	-120.00
1	20	18.18
2	90	74.38
3	-10	-7.51
4	30	20.49
5	30	18.63
6	30	16.93
7	40	20.53
NPV		41.63