Look at the table below with
benefits and costs of a proposed project over 3 years.
What’s the net present value of the project assuming a 5% discount
rate?
Homework Answers
First, calculate net benefit for each year as below:
Year 1 : Net benefit = 125-250 = -125
Year 2 : Net benefit = 150-75 = 75
Year 3 : Net benefit = 100-25 = 75
Now, calculate PV of these net cash flows using the formula below:
NPV = CF1/(1+r)1 + ... CFn/(1+r)n
Substituting given values,
NPV = -125/1.05 + 75/1.052 + 75/1.053
NPV = $13.76
Thus, correct option: (c) $13.8
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