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	-98171
CF1	23100
CF2	3500
CF3	27700
CF4	12800
CF5	21200
CF6	22700
Company Cost of Capital	7

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

period	Cash Flows	CV Factor at 7%	Discounted Cash flows
0	-98,171	1.00000	-98,171.00
1	23,100	0.93458	21,588.80
2	3,500	0.87344	3,057.04
3	27,700	0.81630	22,611.51
4	12,800	0.76290	9,765.12
5	21,200	0.71299	15,115.39
6	22,700	0.66634	15,125.92
	NPV	4.76655	-10,907.23
Annualized Net Present value
= NPV / PV Annuity factor over the project Life
= -10907.23/4.76654
= -2,288.29