however expected to produce the following cash flows: Year 0: $975,000

Question

Question

business finance

Answer 1

Answer #1

NPV of Italian Project

Year	Annual Cash Inflow ($)	Present Value Factor at 11%	Present Value of Annual Cash Inflow ($)

1	3,50,000	0.90090	3,15,315
2	3,70,000	0.81162	3,00,300
3	3,90,000	0.73119	2,85,165
4	3,20,000	0.65873	2,10,794
5	1,15,000	0.59345	68,247
6	80,000	0.53464	42,771

TOTAL			$12,22,592

Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment

= $12,22,592 - $975,000

= $2,47,592

“NPV - Italian Project = $2,47,592”

NPV of Thai Project

Year	Annual Cash Inflow ($)	Present Value Factor at 11%	Present Value of Annual Cash Inflow ($)

1	1,75,000	0.90090	1,57,658
2	2,00,000	0.81162	1,62,324
3	2,10,000	0.73119	1,53,550

TOTAL			$4,73,532

Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment

= $4,73,532 - $425,000

= $48,532

“NPV – Thai Project = $48,532”

NOTE

The Formula for calculating the Present Value Factor is 1/(1 + r)ⁿ, Where “r” is the Discount/Interest Rate and “n” is the number of years.

Answer 2

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