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Hello sir
Initial investment 1 million cash inflow year 1- 750000
Inflow year 2 -500000
Cost of capital year1-10%
Cost of capital year 2-15%
Calculate NPV of project?What they did is-
750000* year 1Df(.909) =681750
Now
.909*.870 = .79*500000=395415
So npv 77000(nearest)But why would we do this ?
Is there any other alternative?
Thanks sirFor the inflow at time 1, we discount for 1 year at 10%.
For the inflow at time 2, we need to discount for 2 years – for one of the 2 years the interest is 10% and for the other year it is 15%, so we discount for 1 years at 10% and for one year at 15%.
There is no other way of doing it.
I explain the logic behind the discounting in my free lectures.
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