Answer to Question #235664 in Financial Math for Steve

Question

A company is currently evaluating a project which requires investments of 5000 now, and 2000 at the end of year. The cash inflows from the project will be 7000 at the end of year 2 and 6000 and the end of year 3. If the discount rate is 16%, what is the net present value of the project?

Answer 1

$NPV= \sum^n_{i=1} \frac{CF_i}{(1+r)^i} - \sum^n_{i=0} \frac{IC_i}{(1+r)^i} \\ CF_1=0 \\ CF_2=7000 \\ CF_3=6000 \\ IC_0=5000 \\ IC_1=2000 \\ r=16 \% \\ NPV= \frac{7000}{(1+0.16)^2} + \frac{6000}{(1+0.16)^3} - \frac{5000}{1} - \frac{2000}{1+0.16} \\ = 5202.14 + 3843.94 -5000 -1724.13 \\ = 2321.95$