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10 points Given the following information calculate the net present value:Initial outlay is $50.000; required rate of return
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Answer #1

Net present value is nothing but the difference between the value of all future cash flows discounted to the present and the initial investment made. NPV takes into consideration the time value of money. The time value of money simply means that a rupee today is of more value today than it will be tomorrow. In terms of a formula,

NPV = Initial Investment - (Cash Flows/((1+rate)^time period))

The data from our question and the workings is depicted below. The answer is option d $93,542

Initial Investment $ 50,000.00
Rate of Return 10%
Year 1 Cash Flow $ 60,000.00
Year 2 Cash Flow $ 30,000.00
Year 3 Cash Flow $ 40,000.00
Year 4 Cash Flow $ 50,000.00
Year Cash Flow Present Value Formula
0 -50000 $    (50,000.00)
1 60000 $      54,545.45 =60000/(1+0.1)^1
2 30000 $      24,793.39 =30000/(1+0.1)^2
3 40000 $      30,052.59 =40000/(1+0.1)^3
4 50000 $      34,150.67 =50000/(1+0.1)^4
NPV (Sum Total) $      93,542.10
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