Homework Answers
Net Present Value : Explains the present value all cash flows (Both Inflows and outflows), by discounting the future cash flows with Cost of Capital of the Firm.
The higher the NPV the better, a project should be taken only is NPV is positive, and if multiple projects are being compared, the project with higher NPV should be chosen.
| Year | Cash Flows | PV Factor @ 10% | PV of Cash Flows @12% |
| 1 | (8,000,000) | 0.909 | (7,272,727) |
| 2 | (8,000,000) | 0.826 | (6,611,570) |
| 3 | (8,000,000) | 0.751 | (6,010,518) |
| 4 | (8,000,000) | 0.683 | (5,464,108) |
| 5 | (8,000,000) | 0.621 | (4,967,371) |
| Net Present Value | (30,326,294) |
Value of Project on Net Present Value basis is $ (30,326,294)
(PV Factor @10yrs at 6th yr = 0.56447
| 6th Year | 0.56447393 | (17,118,402.45) |
Equivalent amount at the end of 6th year = $ 17,118,402.45.
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