Question

What is the net present value (NPV) of a project that has the following cash flows? The required return is 10.0% Year 0 1 2 Cash Flow $ (5,000) $2,000 $ 2,000 $ 2,000 $3,000 $1,000 $1,000 3 4 5 6

Answer 1

Solution:
	NPV of the Project is          $3,208.14
Working Notes:
Notes:	NPV of project we get by discounting project cash flow with required rate of return , NPV which is positive is acceptable to companies as it shows , the project is able to generate return more than required rate of return
	A	B	C=A x B
Year	Cash flow	PVF @10%           Required rate of return	Present value
0	-5,000	1	-5,000.00
1	2,000	0.909090909	1,818.18
2	2,000	0.826446281	1,652.89
3	2,000	0.751314801	1,502.63
4	3,000	0.683013455	2,049.04
5	1,000	0.620921323	620.92
6	1,000	0.56447393	564.47
		NPV	$3,208.14
Hence	The project's NPV is          $3,208.14
Notes: PVF is calculated @ 10% = 1/(1+0.10)^n     where n is the period for which PVF is calculated.
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