Question

What is the net present value of the following set of cash flows at a discount rate of 6 percent? At 12 percent?

Year	Cash Flow
0	−$	47,500
1		12,500
2		18,500
3		21,500
4		22,000

Answer 1

NPV = Present Value of Cash flows - Initial Investment

Year	Cash Flow	PVIF @6%	Present Value
0	$(47,500.00)	1.0000	$     (47,500.00)
1	$ 12,500.00	0.9434	$       11,792.45
2	$ 18,500.00	0.8900	$       16,464.93
3	$ 21,500.00	0.8396	$       18,051.81
4	$ 22,000.00	0.7921	$       17,426.06
		NPV	$ 16,235.26

NPV @12%

Year	Cash Flow	PVIF @12%	Present Value
0	$(47,500.00)	1.0000	$     (47,500.00)
1	$ 12,500.00	0.8929	$       11,160.71
2	$ 18,500.00	0.7972	$       14,748.09
3	$ 21,500.00	0.7118	$       15,303.28
4	$ 22,000.00	0.6355	$       13,981.40
		NPV	$    7,693.47