Question

$12 and will increase by $0.50 each year. Per-unit variable costs are $3, and annual fixed costs are $400,000. Per-unit costs are expected to increase 5% per year. Fixed costs are expected to increase 8% per year. Develop a spreadsheet model to calculate the net present value of profit over a 3-year period, assuming a 4% discount rate.

Answer 1

Net present worth or net present value basically refers to the sum of present values pertaining to outgoing and incoming cash flows over a particular period of time. It is the outgoing and incoming cash flow also depicts the cost and benefit cash flows. It is the difference between the amount of investment and the present value of the future cash flow.

In this situation, the fixed cost is estimated to increase every year by 8, the per-unit cost is estimated to increase every year by 5%, annual fixed cost accounts for $400,000, per-unit variable cost accounts for $3. Sales volume is expected to be 80,000 in the first year.

Net present value is calculated with the appropriate formula in the spreadsheet given below:

The corresponding values are:

Hence, it is ascertained that the net present value accounts for.