Question

Clarion Enterprises is considering two potential investments with differing cash flow periods. This is the first potential investment. It has the following cash flows:

CF0	-79881
CF1	15700
CF2	33300
CF3	28900
CF4	38000
CF5	37900
CF6	5600
Company Cost of Capital	4

Given the above cash flows and investor's required rate of return, what is the Annualized Net Present Value for this proposed investment? 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

Project
Discount rate	0.04
Year	0	1	2	3	4	5	6
Cash flow stream	-79881	15700	33300	28900	38000	37900	5600
Discounting factor	1	1.04	1.0816	1.124864	1.1698586	1.216653	1.265319
Discounted cash flows project	-79881	15096.15	30787.72	25691.99	32482.559	31151.04	4425.761
NPV = Sum of discounted cash flows
NPV Project =	59754.23
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Equvalent annuity(EAA)=	11398.8306
Required rate =	0.04
Year	0	1	2	3	4	5	6
Cash flow stream	0	11398.83	11398.83	11398.83	11398.831	11398.83	11398.83
Discounting factor	1	1.04	1.0816	1.124864	1.1698586	1.216653	1.265319
Discounted cash flows project	0	10960.41	10538.86	10133.52	9743.7682	9369.008	9008.661
Sum of discounted future cashflows =	59754.23
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

annualized NPV = 11398.83