Answer to Question #117934 in Economics for jiten shreshtha

Question

Consider the following cash flow:

End of year Net cash flow (Rs,000)
0 -1100
1 -550
2 0
3 230
4 1000
5 520
6 320
7 450

Calculate the present worth and future worth and payback period, if MARR is 15% per year. Do this
project economically feasible?

Answer 1

The present worth is:

$PV = CF/(1 + r)^n,$

the future worth is:

$FV = CF×(1 + r)^n,$

where r is MARR, n is year, CF is net cash flow.

n CF PV FV

0 -1100 -1100 -1100

1 -550 -478.2 -632.5

2 0 0 0

3 230 151.2 349.8

4 1000 571.8 1749

5 520 258.5 1045.9

6 320 138.3 740.2

7 450 169.2 1197

NPV of the project is negative after the year 7, so the payback period is more than 7 years.