Question

1. What is the net present value of the following set of cash flows at a required rate of 7 percent? At 20 percent? Time period Cash flow 1 -$17,000 2 4,500 3 8,700 4 11,900

Answer 1

a)	Net Present Value at 7%			$     4,222.87
Working:
	Year	Cash Flow	Discount factor	Present value
	a	b	c=1.07^-a	d=b*c
	1	$       -17,000	0.934579	$ -15,887.85
	2	4,500	0.873439	$     3,930.47
	3	8,700	0.816298	$     7,101.79
	4	11,900	0.762895	$     9,078.45
	NPV			$     4,222.87
b)	Net Present Value at 20%			$       -268.13
Working:
	Year	Cash Flow	Discount factor	Present value
	a	b	c=1.20^-a	d=b*c
	1	$       -17,000	0.833333	$ -14,166.67
	2	4,500	0.694444	$     3,125.00
	3	8,700	0.578704	$     5,034.72
	4	11,900	0.482253	$     5,738.81
	NPV			$       -268.13