Question

1. Calculate the net present value (NPV) of a project with the following stream of CFs: C, through Cls are all equal to $800, C19 = $300, and C20 = -$800 (notice the minus). The initial investment is $4000. The appropriate discount rate is 10%.

Answer 1

Provided,

discount rate = 10%

Cash flows = Year 1 to 18 = $800

Year 19 = $300

Year 20 = -$800

Initial investment at Year 0 = $4,000

We can compute the NPV of above project with following equation:

$\small NPV = 800*P/A(0.1,18)+300*P/F(0.1,19)+(-800)*P/F(0.1,20) - 4,000$

$\small NPV = 800*\left ( \frac{(1+0.1)^{18}-1}{0.1*(1+0.1)^{18}} \right )+\frac{300}{(1+0.1)^{19}}+\frac{(-800)}{(1+0.1)^{20}} - 4,000$

$\small NPV = 800*8.20141210090786+49.0523972479673-118.914902419315 - 4,000$

$\small NPV = 6561.12968072629+49.0523972479673-118.914902419315 - 4,000$

$\small NPV = 6491.26717555494 - 4,000$

$\small NPV = 2491.26717555494$

$\bg_green \large NPV = \$2,491.27$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

Answer 2

5000

5000