- This topic has 5 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Able LTD is considering a new project for which the following information is available:
Initial cost – $300000
Expected life – 5 years
Estimated scrap value – $20000
Additional revenue from the project – $120000 per year
Incremental cost for the project – $30000 per yearCost of capital – 10%
Calculate the Net Present Value
please correct where im wrong.
Year 0 (300000) (300000)
1 120000 – 30000 * 0.909 = 81810
2 120000 – 30000 * 0.826 = 74340
3 120000 – 30000 * 0.751 = 67590
4 120000 – 30000 * 0.683 = 61470
5 120000 – 30000 + 20000 * 0.621 = 68310
NPV = $ 53520Your answer is correct!
I would guess that the answer in your book is slightly different because they will have used the annuity discount factor for the 90,000 a year (which is much more sensible – there is a lot of time pressure in the exam and it is silly to waste time discounting each year separately).
The difference will be due to roundings (the tables only go to three decimal places) but rounding is irrelevant for the exam (just as it is in real life).
Have you watched the free lectures on this?
For the first 4 years it is 90000 per year but on the 5th year it is 100000.. can you please show me how to get the anwer using the annuity table? im a bit lost :/.. thanks in advance
Use the annuity tables for 90,000 a year for 5 years.
Use the normal PV tables for the extra 20,000 in 5 years time.one more question sir.. i know this mind sound a bit foolish but i need to be sure.. should we do the same when calculating discounted payback?
- The topic ‘Net Present Value’ is closed to new replies.