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Step-By-Step Calculation: Given: Year 0 (Initial Investment) Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Discount Rate

The document outlines a step-by-step calculation of the Net Present Value (NPV) for an investment with an initial cost of -28,900 and cash flows over three years. Using a discount rate of 12%, the present values of the cash flows are calculated, leading to a total NPV of approximately -177.62. The final answer indicates that the investment results in a negative NPV, suggesting it may not be a viable option.

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15 views2 pages

Step-By-Step Calculation: Given: Year 0 (Initial Investment) Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Discount Rate

The document outlines a step-by-step calculation of the Net Present Value (NPV) for an investment with an initial cost of -28,900 and cash flows over three years. Using a discount rate of 12%, the present values of the cash flows are calculated, leading to a total NPV of approximately -177.62. The final answer indicates that the investment results in a negative NPV, suggesting it may not be a viable option.

Uploaded by

温速强
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Step-by-step Calculation:

Given:

• Year 0 (Initial Investment): C0=−28,900C0=−28,900

• Year 1 Cash Flow: C1=12,450C1=12,450

• Year 2 Cash Flow: C2=19,630C2=19,630

• Year 3 Cash Flow: C3=2,750C3=2,750

• Discount Rate: r=0.12r=0.12

The NPV formula becomes:

NPV=−28,900(1+0.12)0+12,450(1+0.12)1+19,630(1+0.12)2+2,750(1+0.12)3NPV=(1+0.12)0−28,9
00+(1+0.12)112,450+(1+0.12)219,630+(1+0.12)32,750

Step 1: Calculate the Present Value (PV) of each cash flow:

1. Year 0:

PV0=−28,9001=−28,900PV0=1−28,900=−28,900

2. Year 1:

PV1=12,450(1+0.12)1=12,4501.12≈11,116.07PV1=(1+0.12)112,450=1.1212,450≈11,116.07

3. Year 2:
PV2=19,630(1+0.12)2=19,6301.2544≈15,642.86PV2=(1+0.12)219,630=1.254419,630
≈15,642.86

4. Year 3:

PV3=2,750(1+0.12)3=2,7501.4049≈1,957.45PV3=(1+0.12)32,750=1.40492,750≈1,957.45

Step 2: Add up all Present Values:

NPV=PV0+PV1+PV2+PV3NPV=PV0+PV1+PV2+PV3

NPV=−28,900+11,116.07+15,642.86+1,957.45NPV=−28,900+11,116.07+15,642.86+1,957.45

NPV≈−177.62NPV≈−177.62

Final Answer:

The NPV is approximately -177.62.

Correct option: b. -177.62

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