Question

What is the NPV of a project that costs $11,000 today and another $8,000 in one year, and is then expected to generate 9 annual cash inflows of $4,000 starting at the end of year 3. Use discount rate of 12%. Round to the nearest cent.

Answer 1

Solution :

The NPV of the project is = - $ 1,152.26

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

31.10.2019 - Microsoft Excel DES FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW ДА В (3) Statement showing calculation of Discounted Cash flows and Net Present value SI.No. Particulars Project Cash Year PV Factor @ Discounted Cash Flows Flows (2) 12% of the project (1) (4)=(1) * (3) 1 Cash outflow Year O $ 11,000.00 OD 1.0000 $ 11,000.0000 2 Cash outflow Year 1 $ 8,000.00 7,142.8571 Total of Discounted Cash Outflows (A) 18,142.8571 4 Cash Inflow Year 1 0.8929 $ 5 Cash Inflow Year 2 $ 0.7972 $ 6 Cash Inflow Year 3 $ 4,000.00 0.7118 $ 2,847.1210 7 Cash Inflow Year 4 $ 4,000.00 0.6355 $ 2,542.0723 8 Cash Inflow Year 5 $ 4,000.00 0.5674 $ 2,269.7074 9 Cash Inflow Year 6 $ 4,000.00 0.5066 $ 2,026.5245 10 Cash Inflow Year 7 $ 4,000.00 0.4523 $ 1,809.3969 11 Cash Inflow Year 8 $ 4,000.00 0.4039 $ 1,615.5329 12 Cash Inflow Year 9 $ 4,000.00 9 0.3606 $ 1,442.4401 13 Cash Inflow Year 10 $ 4,000.00 10 0.3220 $ 1,287.8929 14 Cash Inflow Year 11 $ 4,000.00 11 0.2875 $ 1,149.9044 Total of Discounted Cash Inflows (B) 16,990.5924 Net Present Value = (B) - (A) -1,152.2647 17Net Present Value (When rounded off to the nearest cent) $ 1,152.26