Question

Principles of Corporate Finance (12th Edition) Chapter 5, Problem 11P Calculate the NPV of each project for discount rates of 0%, 10%, and 20%. Plot these on a graph with NPV on the vertical axis and discount rate on the horizontal axis. I tried to input the values in the given formula and I am getting completely different answers can you please input the formula and see where I went wrong?

Answer 1

The question is assumed as following as per the book referred

Project	C0	C1	C2	C3
A	-100	+60	+60	0
B	-100	0	0	+140

Project A
Project A	Year	Cash Flow	PVF@ 0%	Present value [Cash flow *PVF]	PVF@ 10%	Present value [Cash flow *PVF]	PVF@ 20%	Present value [Cash flow *PVF]
C0	0	-100	1	-100.00	1	-100.00	1	-100.00
C1	1	60	1.0000	60.00	0.9091	54.55	0.8333	45.45
C2	2	60	1.0000	60.00	0.8264	49.59	0.6944	34.44
C3	3	0	1.0000	0.00	0.7513	0.00	0.5787	0.00
NPV				20.00		4.13		-20.11
Project B
Project B	Year	Cash Flow	PVF@ 0%	Present value [Cash flow *PVF]	PVF@ 10%	Present value [Cash flow *PVF]	PVF@ 20%	Present value [Cash flow *PVF]
C0	0	-100	1	-100.00	1	-100.00	1	-100.00
C1	1	0	1.0000	0.00	0.9091	0.00	0.8333	0.00
C2	2	0	1.0000	0.00	0.8264	0.00	0.6944	0.00
C3	3	140	1.0000	140.00	0.7513	105.18	0.5787	60.87
NPV				40.00		5.18		-39.13

The below NPV values are plotted on the graph taking NPV on the Vertical axis and Discount rate (%) on Horizontal axis.

Discount Rate (%)	NPV - A	NPV - B
0	20.00	40.00
10	4.13	5.18
20	-20.11	-39.13