Question

Beginning one month from now, a customer will pay his Internet provider $25 per month for the next five years. Assuming all revenue for a year is received at the middle of a year, estimate the NPV of these revenues. Use r =0.15.

Consider the following set of cash flows over a four-year period. Determine the NPV of these cash flows, if r 0.15 and cash flows occur at the end of the year Year 1 4 $600 $550 $680 $1,000

USE EXCEL

Answer 1

1. I have used the usual discounting formula with r=15% for the below calculations. PV = Amount/ (1+r)^n.
Please note that since payments occur during middle of the year, we take the discounting period as 0.5, 1.5, 2.5 years etc..
NPV is the sum of PV's of all these payments.

Year	Amount	PV
1	300	279.7514
2	300	243.2621
3	300	211.5323
4	300	183.9411
5	300	159.9488
	NPV	1078.436

2. Here, payments occur at the end of the year, so discounting period used as 1,2,3, etc.

Year	Amount	PV
1	-600	-521.739
2	550	415.879
3	-680	-447.111
4	1000	571.7532
	NPV	18.78209