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*Help! How to calculate Net Present Value?*?
*** The company's discount rate is 16%
Calculate the net present value of cash flows in Project A and Project B.
Project A:
Investment Required: $30,000
Annual Cash inflows: $10,000
Single cash inflow at the end of 16 years: ??
Life of the Project: 16 years
Project B:
Investment Required: $30,000
Annual Cash Inflows: ??
Single cash inflow at the end of 16 years: $185,000
Life of Project: 16 years
ANSWER:
PROJECT A: $
PROJECT B: $
Thank you so much if you can help. I am horrible at Accounting.
1 Answer
- Don GLv 71 decade agoFavorite Answer
You really need a financial calculator to solve these problems. And you need to understand Present Value concepts.
Project A - NPV = 26,685. That means the PV of 16 annual inflows of 10,000, at 16%, is 56,685. Subtract 30,000 to get Net PV.
Project B - Annual Cash Flow required = 32,636.52 to have a NPV of 155,000. To solve B, determine the Annuity required (the annual cash flow) that would have a PV of $185,000. That is 32,636.52. The NPV then is 185,000 less 30,000, or 155,000.
