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- This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.

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- May 23, 2022 at 6:26 pm #656273
Hi Mr. Maffot,

I have tried to attempt this question many times. However I’m not getting the answer. Can you please explain this question and answer.

Thanks.

The following information relates to a two-year project.

Initial investment $1 million

Cash inflow Year 1 $750,000

Cash inflow Year 2 $500,000

Cost of capital Year 1 10%

Cost of capital Year 2 15%What is the net present value of the project (to the nearest $500)?

A ($12,000)

B ($55,000)

C $77,000

D $116,500May 23, 2022 at 8:31 pm #656283Does your book not show the workings for the answer?

The PV of the cash inflow at time 1 is 750,000 x (1/1.1)

or, alternatively 750,000 x the 1 year discount factor at 10%The PV of the cash inflow at time 2 is 500,000 x (1/1.1) x (1/1.15)

or, alternatively, 500,000 x the 1 year discount factor at 10% x the 1 year discount factor at 15%Using the discount factors from the tables will give a slightly different answer because of the rounding in the tables, but to the nearest 500 it will not make a difference 🙂

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