Homework Answers
| Net Present value = Present value of cash inflows - total cash outflow | |||||
| Initial Investment = 51000 | |||||
| Present value of cash inflows= 103510.40 [computation given below] | |||||
| Year | Particulars | Cash flow | Present value factor@6% | Present value of Cash flow | |
| 1-9 | Savings | 14000 | 6.8017 | 95223.80 | |
| 9 | Sale proceeds | 14000 | 0.5919 | 8286.60 | |
| 103510.40 | |||||
| Net Present value = 103510.40-51000 = 52510.40 | |||||
|
Net Present value = 52510.40 Part b answer = Since NPV is positive, return of investment will be more than required rate of return. hence investment earns more return than expected. |
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