Question

Please calculate the Net Present Value for the following scenario:

Today End of Year 1 End of Year 2 End of Year 3 End of Year 4
Outflow (investment) 2000
Inflow (return) 300 350 400 450

Discount rate-14%
Annual compounding at the end of the year (do not use your calculator's annuity due function)

Answer 1

Answer:

-$931.35

Explanation:

The computation of the net present value is given below:

Before that the present value is

Year    Amount        Discount factor at 14%      Present value

1           $300                   .877                                  $263.1

2          $350                    .769                                 $269.15

3          $400                    .675                                 $270

4          $450                    .592                                 $266.4

PV of Cash Inflows = $1,068.65

And, the initial investment is $2,000

So, the net present value is

= The present value of Cash inflows - initial investment

= $1,068.65 - $2,000

= -$931.35

Answer 2

The computation of the net present value is:

• -$931.35

The computation of the net present value is given below:

Year    Amount        Discount factor at 14%      Present value

1           $300                   0.877                                  $263.1
2          $350                    0.769                                 $269.15
3          $400                    0.675                                 $270
4          $450                   0 .592                                 $266.4

• PV of Cash Inflows = $1,068.65
  
• Initial investment =$2,000
  

• Net Present Value  = The present value of Cash inflows - initial investment
  Net Present Value  = $1,068.65 - $2,000
  Net Present Value  = -$931.35

The Net Present Value for the following scenario will be -$931.35.

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