Question

In: Finance

If the discount rate changes from 12% to 15%, what is the CHANGE in the NPV of the project approximately?

A project has the following cash flows:

Year 0 Year 1 Year 2 Year 3
Cash flow -100.000 70.000 120.000 200.00

If the discount rate changes from 12% to 15%, what is the CHANGE in the NPV of the project approximately?

Please no excel sheet, just detailed steps for someone new in finance ;)

Solutions

Expert Solution

Answer : Calculation of Change in Net Present Value if Discount rate changes from 12% to 15%

Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow

Below is the table showing calculation of NPV when Discount rate is 12%

Year Cash Inflow (A) Present Value Factor @12%[1/(1+0.12)^n] Put n as 1,2,3 respectively..(B) Present value of cash inflow (A)*(B)
1 70 0.892857143 62.5
2 120 0.797193878 95.66326531
3 200 0.711780248 142.3560496
Total Present value of cash inflow 300.5193149
Less : Cash outflow 100
Net Present Value 200.52

Below is the table showing calculation of NPV when Discount rate is 15%

Year Cash Inflow(A) Present Value Factor @15%[1/(1+0.15)^n] Put n as 1,2,3 respectively..(B) Present value of cash inflow (A)*(B)
1 70 0.869565217 60.86956522
2 120 0.756143667 90.73724008
3 200 0.657516232 131.5032465
Total Present value of cash inflow 283.1100518
Less : Cash outflow 100
Net Present Value 183.11

Therefore if Discount rate changes from 12% to 15% then NPV will decrease by approx 17.41 (200.52 - 183.11)

jeff jeffy answered 2 years ago
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