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ABC Company is planning to purchase a conveyor belt that has a cost of $1.5 million....

ABC Company is planning to purchase a conveyor belt that has a cost of $1.5 million. On December 31, Year 3, a positive cash inflow of $250,000 is expected from this project. Also, as of December 31, Year 3, the applicable “cumulative discount factor” for this project is .235 or 23.5%. Given this information, calculate the Present Value (PV) as of t = 0 for the Year 3 project cash flow.

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Answer #1

Cumulative discount factor for the project is 0.235

Cash flow in 3rd year = $250000

Hence Present value of Year 3 project cash flow as of t=0 will be, 0.235*$250000 = $58750

If we are to calculate NPV then, NPV = PV of cash inflow - PV of cash outflow

So, NPV = $1500000-$58750= $1441250

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