In: Accounting
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)
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