Question

Question 75 Unsaved Clarion Auto is considering two potential investments with differing cash flow periods. This is the first potential investment. It has the following cash flows: CF0 -82382 CF1 41000 CF2 6100 CF3 38800 CF4 31100 CF5 9500 CF6 39100 Company Cost of Capital 9 Given the above cash flows and investor's required rate of return, what is the Annualized Net Present Value for this proposed investment for Clarion Auto? Express your answers as XXXX.XX. (Note: Be sure you noticed that this is asking for an annualized Net Present Value, not the Net Present Value. This would be used in comparing potential investments with differing investment cash flow periods.)

Answer 1

	Discount rate = R =	9.00%	Present Values (PV)
Year	Cash flows	Discount factor or PV factors = Df = 1/(1+R)^Year	PV of cash flows = Cash flows x Df
0	-$82,382.00	1.000000	-$82,382.000000
1	$41,000.00	0.917431	$37,614.678899
2	$6,100.00	0.841680	$5,134.247959
3	$38,800.00	0.772183	$29,960.719026
4	$31,100.00	0.708425	$22,032.024064
5	$9,500.00	0.649931	$6,174.348170
6	$39,100.00	0.596267	$23,314.052481
		Total of PV = NPV =	$41,848.07

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate =	9.000000
FV = Future value =	$0
N = Total payment term =	6
PV = Present value = Use calculated NPV =	-$41,848.07
CPT > PMT = Payment =	$9,328.76
Alternate formula-based method:
PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1)	$9,328.76

PMT = Annualized NPV = $9,328.76