Question

b) A project has the following cash flows: Year 0 1 2 Cash Flow -$16,400 7.100 8,400 6.900 3 a) What is the NPV at a discount rate of 0%? b) What is the NPV at a discount rate of 10%? c) What is the NPV at a discount rate of 20%? d) What is the NPV at a discount rate of 30%?

Answer 1

Answer :

a) NPV at a discount rate of 0%.

Year	Cash Flow($)	Discount Factor at 0% (Note 1)	Discounted Cash Inflow($)
0	-16,400	1.0000	-16,400
1	7,100	1.0000	7,100
2	8,400	1.0000	8,400
3	6,900	1.0000	6,900

Net Present Value

6,000

b) NPV at a discount rate of 10%.

Year	Cash Flow($)	Discount Factor at 10%	Discounted Cash Inflow($)
0	-16,400	1	-16,400
1	7,100	0.9091	6,455
2	8,400	0.8264	6,942
3	6,900	0.7513	5,184

Net Present Value

2,181

c) NPV at a discount rate of 20%.

Year	Cash Flow($)	Discount Factor at 20%	Discounted Cash Inflow($)
0	-16,400	1	-16,400
1	7,100	0.8333	5,916
2	8,400	0.6944	5,833
3	6,900	0.5787	3,993

Net Present Value

-658

d) NPV at a discount rate of 30%.

Year	Cash Flow($)	Discount Factor at 30%	Discounted Cash Inflow($)
0	-16,400	1	-16,400
1	7,100	0.7692	5,461
2	8,400	0.5917	4,970
3	6,900	0.4552	3,141

Net Present Value

-2,828

Note 1 : At a discount rate '0' future generations of income treating as like current income.