Question

For the following set of cash flows,

  

Year	Cash Flow
0	–$6,100
1	5,400
2	5,600
3	3,300

  

Required:
(a)	What is the NPV at a discount rate of 0 percent?

(b)	What is the NPV at a discount rate of 14 percent?

(c)	What is the NPV at a discount rate of 18 percent?

(d)	What is the NPV at a discount rate of 23 percent?

Answer 1

(a)
	NPV at 0 percent		$ 8,200.00
Working:
Year	Cash flow	Discount factor	Present Value
a	b	c=1.0^-a	d=b*c
0	$            -6,100	1.0000	$       -6,100.00
1	5,400	1.0000	5,400.00
2	5,600	1.0000	5,600.00
3	3,300	1.0000	3,300.00
	NPV		8,200.00
(b)
	NPV at 14 percent		$ 5,173.27
Working:
Year	Cash flow	Discount factor	Present Value
a	b	c=1.14^-a	d=b*c
0	$            -6,100	1.0000	$       -6,100.00
1	5,400	0.8772	4,736.84
2	5,600	0.7695	4,309.02
3	3,300	0.6750	2,227.41
	NPV		5,173.27
(c)
	NPV at 18 percent		$ 4,506.59
Working:
Year	Cash flow	Discount factor	Present Value
a	b	c=1.18^-a	d=b*c
0	$            -6,100	1.0000	$       -6,100.00
1	5,400	0.8475	4,576.27
2	5,600	0.7182	4,021.83
3	3,300	0.6086	2,008.48
	NPV		4,506.59
(d)
	NPV at 23 percent		$ 3,765.11
Working:
Year	Cash flow	Discount factor	Present Value
a	b	c=1.23^-a	d=b*c
0	$            -6,100	1.0000	$       -6,100.00
1	5,400	0.8130	4,390.24
2	5,600	0.6610	3,701.50
3	3,300	0.5374	1,773.37
	NPV		3,765.11