- September 5, 2021 at 11:21 am #634424
In the question pertaining to furlion Co, they have taken the pa(value of underlying asset) as 15m discounted at 12 percent for 3 years.
They have also mentioned that the NPV of expanded project is estimated at 0.
So shouldn’t Pa be the value that when discounted at 12 percent becomes 15 so as to make NPV 0?September 5, 2021 at 7:51 pm #634495
No, Pa is the discounted value.September 5, 2021 at 8:05 pm #634502
I have an understanding gap here.. how is it so?September 5, 2021 at 8:27 pm #634514
If the NPV is 0, then the PV of the returns must be equal to the PV of the investment of 15m in the 3 years time.
Therefore the PV of the returns must be equal to the PV of 15m discounted for 3 years,September 5, 2021 at 9:22 pm #634515
If PV is discounted for 3 years at current value, then it comes to around 10.68mn.. which makes the NPV negative.. 15Mn (investment) -10.68mn (returns). The. NPV would be negative 4.32mn. right?September 6, 2021 at 8:26 am #634539
The PV now of the investment of 15M is $10.68.
The NPV now is zero.
Therefore the PV of the returns must be 10.68M (and is Pa).
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