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Net Present value (NPV).

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Net Present value (NPV).

  • This topic has 1 reply, 2 voices, and was last updated 8 months ago by John Moffat.
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    Posts
  • May 23, 2022 at 6:26 pm #656273
    sarbrina
    Participant
    • Topics: 22
    • Replies: 49
    • ☆☆

    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 $116,500

    May 23, 2022 at 8:31 pm #656283
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    Does 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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