Question

Use a 5 percent discount rate to compute the NPV of each of the following series of cash receipts and payments: Use Appendix A and Appendix B. $6,200 received now (year 0), $1,890 paid in year 3, and $4,000 paid in year 5. $10,000 paid now (year 0), $12,690 paid in year 2, and $31,000 received in year 8. $20,000 received now (year 0), $13,500 paid in year 5, and $7,500 paid in year 10. (For all requirements, round discount factor(s) to 3 decimal places, and all other intermediate calculations to the nearest whole dollar amount. Cash outflows should be indicated by a negative sign.)

523 and 528 are not the answer for B

Answer 1

Answer 1)

Cash Inflow = $ 6,200 in year 0

Cash outflows = $ 1,890 paid in year 3 and $ 4,000 paid in year 5

Calculation of Net present Value

Net Present value = Present value of cash inflows – Present value of cash outflows

                                  = $ 6,200 - $ 4,767

                                  = $ 1,433

Therefore the Net Present value is $ 1,433.  

Working Note:

Calculation of Present value of cash inflows

Present value of cash inflows: Since $ 6,200 is received now, its present value will also be $ 6,200.

Calculation of Present value of cash Outflows

Present value of cash outflows = (Cash outflow in year 3 X Present value factor at 5% for 3 years) + (Cash outflow in year 5 X Present value factor at 5% for 5 years)

                                                                 = (1,890 X 0.86384) + ($ 4,000 X 0.78353)

                                                                 = $ 1,632.66 + $ 3,134.12

                                                                 = $ 4,767

Answer 2)

Cash Inflow = $ 31,000 in year 8

Cash outflows = $ 10,000 paid in year 0, $ 12,690 paid in year 2

Calculation of Net present Value

Net Present value = Present value of cash inflows – Present value of cash outflows

                                  = $ 20,982 - $ 21,510

                                  = - $ 528

Therefore the Net Present value is - $ 528.  

Working Note:

Calculation of Present value of cash inflows

Present value of cash inflows = (cash inflow in year 8 X Present value factor at 5% for 8 years)

                                                    = ($ 31,000 X 0.67684)

                                                      = $ 20,982

Calculation of Present value of cash Outflows

Present value of cash outflows = Cash outflow in year 0 + (Cash outflow in year 2 X Present value factor at 5% for 2 years)

                                                                 = $ 10,000 + ($ 12,690 X 0.90703)

                                                                 = $ 10,000 + $ 11,510

                                                                = $ 21,510

Answer 3)

Cash Inflow = $ 20,000 in year 0

Cash outflows = $ 13,500 paid in year 5 and $ 7,500 paid in year 10

Calculation of Net present Value

Net Present value = Present value of cash inflows – Present value of cash outflows

                                  = $ 20,000 - $ 15,182

                                  = $ 4,818

Therefore the Net Present value is $ 4,818.  

Working Note:

Calculation of Present value of cash inflows

Present value of cash inflows: Since $ 20,000 is received now, its present value will also be $ 20,000.

Calculation of Present value of cash Outflows

Present value of cash outflows = (Cash outflow in year 5 X Present value factor at 5% for 5 years) + (Cash outflow in year 10 X Present value factor at 5% for 10 years)

                                                                 = (13,500 X 0.78353) + ($ 7,500 X 0.61391)

                                                                 = $ 10,577.66 + $ 4,604.33

                                                                 = $ 15,182