Homework Answers
a) Net present value of the project = P0 + P1(1 + r)^-1 + P2(1 + r)^-2 + P3(1 + r)^-3
= -470,000 + 275,000(1 + 4%)^-1 + 295,000(1 + 4%)^-2 + 315,000(1 + 4%)^-3
= $347,201
b) When all benefits occur in the beginning of each period we have
Net present value of the project = P0 + P1 + P2(1 + r)^-1 + P3(1 + r)^-2
= -470,000 + 275,000 + 295,000(1 + 4%)^-1 + 315,000(1 + 4%)^-2
= $379,889
Net present value rises when benefits are received in the beginning of the year.
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