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

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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