Question

What is the net present value (NPV) of your proposed expansion into the Canada? Assume that the cash flows after year 0 occur at the end of each year. The required rate of return is 15.4%. (Round to nearest penny) Year 0 cash flow = -860,000 Year 1 cash flow = -110,000 Year 2 cash flow = 420,000 Year 3 cash flow = 470,000 Year 4 cash flow = 430,000 Year 5 cash flow = 460,000

Answer 1

Since the Cash flows every year occur at the end of each year, the same are considered as cashflows for starting of next year;

Based on this, the NPV is 589.33 (Answer)

Have separately worked on NPV if such assumption on timing of cash flows is not given;

Computation of Net Present Value (NPV) based on the Discounted Cash flows; The Discounting factor is computed based on the formula: For year 0, the discounting factor is 1; For Year 1, it is computed as = Year 0 factor /(1+discounting factor%) ; Year 2 = Year 1 factor/(1+discounting factor %) and so on;

Next, the cashflows need to be multiplied with the respective years' discounting factor, to arrive at the discounting cash flows;

The total of all the discounted cash flows is equal to its respective Project NPV of the Cash Flows;