Homework Answers
Net Present Value (NPV)
|
Year |
Annual Cash Inflow ($) |
Present Value Factor at 3% |
Present Value of Annual Cash Inflow ($) |
|
1 |
4,567 |
0.97087 |
4,433.98 |
|
2 |
6,789 |
0.94260 |
6,399.28 |
|
3 |
5,678 |
0.91514 |
5,196.17 |
|
4 |
2,345 |
0.88849 |
2,083.50 |
|
5 |
1,234 |
0.86261 |
1,064.46 |
|
TOTAL |
$19,177.40 |
||
Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment
= $19,177.40 - $14,800
= $4,377.40
DECISION
YES. The Investment Proposal should be accepted, since the Net Present Value (NPV) of the Project is Positive $4,377.40.
NOTE
The Formula for calculating the Present Value Factor is calculated is 1/(1 + r)n, Where “r” is the Discount/Interest Rate and “n” is the number of years.
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2.
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