For the following set of cash flows, |
Year | Cash Flow |
0 | –$8,000 |
1 | 4,800 |
2 | 3,500 |
3 | 5,200 |
a. What is the NPV at a discount rate of 0 percent? |
b. What is the NPV at a discount rate of 15 percent? |
c. What is the NPV at a discount rate of 23 percent? |
d. What is the NPV at a discount rate of 28 percent? |
Net present value is the present value of cash inflows minus the initial investment. For calculating the present value in this question, we will use the present value of $1 table.
(a) At discount rate of 0%, present value of cash inflows will be the sum of all cash inflows.
Sum of cash inflows = $4800 + $3500 + $5200 = $13500
Initial investment = $8000
Net present value (NPV) = Present value of cash inflows - Initial investment
Net present value (NPV) = $13500 - $8000 = $5500
(b) At discount rate of 15%, present value of cash inflows is:
Present value of cash inflows = $4800 * PVIF (15%, 1 year) + $3500 * PVIF (15%, 2 year) + $5200 * PVIF (15%, 3 year)
where, PVIF is the present value of $1 at 15% for various years.
We will now use the present value tables to find the value of PVIF at 15% for various years and put the values in the equation above as per below:
Present value of cash inflows = ($4800 * 0.870) + ($3500 * 0.756) + ($5200 * 0.658)
Present value of cash inflows = $4176 + $2646 + $3421.6
Present value of cash inflows = $10243.6
Initial investment = $8000
Net present value (NPV) = Present value of cash inflows - initial investment
Net present value (NPV) = $10243.6 - $8000 = $2243.6
(c) At discount rate of 23%, present value of cash inflows is:
Present value of cash inflows = $4800 * PVIF (23%, 1 year) + $3500 * PVIF (23%, 2 year) + $5200 * PVIF (23%, 3 year)
where, PVIF is the present value of $1 at 23% for various years.
We will now use the present value tables to find the value of PVIF at 23% for various years and put the values in the equation above as per below:
Present value of cash inflows = ($4800 * 0.81) + ($3500 * 0.66) + ($5200 * 0.54)
Present value of cash inflows = $3888 + $2310+ $2808
Present value of cash inflows = $9006
Initial investment = $8000
Net present value (NPV) = Present value of cash inflows - initial investment
Net present value (NPV) = $9006 - $8000 = $1006
(d) At discount rate of 28%, present value of cash inflows is:
Present value of cash inflows = $4800 * PVIF (28%, 1 year) + $3500 * PVIF (28%, 2 year) + $5200 * PVIF (28%, 3 year)
where, PVIF is the present value of $1 at 28% for various years.
We will now use the present value tables to find the value of PVIF at 28% for various years and put the values in the equation above as per below:
Present value of cash inflows = ($4800 * 0.78) + ($3500 * 0.61) + ($5200 * 0.48)
Present value of cash inflows = $3744 + $2135 + $2496
Present value of cash inflows = $8375
Initial investment = $8000
Net present value (NPV) = Present value of cash inflows - initial investment
Net present value (NPV) = $8375 - $8000 = $375
For the following set of cash flows, Year Cash Flow 0 –$8,500 1 3,500 2 4,500 3 3,300 a. What is the NPV at a discount rate of 0 percent? b. What is the NPV at a discount rate of 8 percent? c. What is the NPV at a discount rate of 22 percent? d. What is the NPV at a discount rate of 27 percent?
P9-11 Calculating NPV [LO1] For the following set of cash flows, Year Cash Flow 0 –$7,000 1 6,900 2 5,200 3 5,500 Required: (a) What is the NPV at a discount rate of 0 percent? (b) What is the NPV at a discount rate of 13 percent? (c) What is the NPV at a discount rate of 20 percent? (d) What is the NPV at a discount rate of 25 percent?
For the following set of cash flows, Year Cash Flow 0 –$8,400 1 3,600 2 4,900 3 6,200 a. What is the NPV at a discount rate of 0 percent? b. What is the NPV at a discount rate of 8 percent? c. What is the NPV at a discount rate of 18 percent? d. What is the NPV at a discount rate of 23 percent?
For the following set of cash flows, Year Cash Flow 0 –$7,500 1 3,500 2 6,200 3. 3,700 d. What is the NPV at a discount rate of 24 percent?
For the following set of cash flows, Year Cash Flow 0 –$8,200 1 4,800 2 5,800 3 3,900 Required: (a) What is the NPV at a discount rate of 0 percent? (Click to select)$6,489$6,300.00$5,985$6,615$6,111 (b) What is the NPV at a discount rate of 12 percent? (Click to select)$3,380.82$3,659.65$3,311.11$3,485.38$3,589.94 (c) What is the NPV at a discount rate of 22 percent? (Click to select)$1,714.55$1,832.35$1,690.04$1,867.93$1,778.99 (d) What is the NPV at a discount...
For the following set of cash flows, Year Cash Flow 0 –$9,000 1 6,100 2 6,500 3 5,000 a. What is the NPV at a discount rate of 0 percent? b. What is the NPV at a discount rate of 9 percent? c. What is the NPV at a discount rate of 25 percent? d. What is the NPV at a discount rate of 30 percent?
For the following set of cash flows, Year Cash Flow 0 –$7,000 1 6,500 2 3,700 3 3,100 a. What is the NPV at a discount rate of 0 percent? b. What is the NPV at a discount rate of 11 percent? c. What is the NPV at a discount rate of 19 percent? d. What is the NPV at a discount rate of 24 percent?
For the following set of cash flows, YearCash Flow0–$6,300 14,500 23,300 34,500 Required:(a)What is the NPV at a discount rate of 0 percent?(Click to select)$6,300$5,700$6,180$5,820$6,000.00 (b)What is the NPV at a discount rate of 12 percent?(Click to select)$3,729.19$3,551.61$3,374.03$3,658.16$3,445.06 (c)What is the NPV at a discount rate of 25 percent?(Click to select)$1,767.48$1,630.2$1,716$1,646.88$1,801.8(d)What is the NPV at a discount rate of 30 percent?(Click to select)$1,162.45$1,104.33$1,220.57$1,197.32$1,127.58
A project has the following cash flows: Year Cash Flows 0 $-16,200 1 $6,900 2 $8,200 3 $6,700 a) What is the NPV at a discount rate of zero percent? b) What is the NPV at a discount rate of 10 percent? c) What is the NPV at a discount rate of 20 percent? d) What is the NPV at a discount rate of 30 percent?
Calculating Profitability Index What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? YearCash Flow0-$29,500116,900213,60038,300