Question

Tinto Company is planning to invest in a project at a cost of $135,000. This project has the following expected cash flows over its three-year life: Year 1, $45,000; Year 2, $52,000; and Year 3, $78,000. Management requires a 10% rate of return on its investments. Compute the net present value of this investment. Use PV tables that are in a separate file or see Appendix B of your textbook.

Year	Net Cash Flows	Present Value of 1 at 10%	Present Value of Net Cash Flows
1
2
3
Total	$175,000
Less initial investment
= Net present value

PV table:

1 .... 0.8696

2 .... 0.7561

3 .... 0.6575

Answer 1

Year	Net Cash flows	Present Value of 1 at 10%	Present Value of Net Cash Flows		Year	Net Cash flows	Present Value of 1 at 15%	Present Value of Net Cash Flows
1	$        45,000.00	0.9091	$         40,909.50		1	$    45,000.00	0.8696	$    39,132.00
2	$        52,000.00	0.8264	$         42,972.80		2	$    52,000.00	0.7561	$    39,317.20
3	$        78,000.00	0.7513	$         58,601.40		3	$    78,000.00	0.6575	$    51,285.00
Total	$    1,75,000.00		$     1,42,483.70		Total	$1,75,000.00		$1,29,734.20
Less Initial Investment			$     1,35,000.00		Less Initial Investment			$1,35,000.00
Net Present Value			$           7,483.70		Net Present Value			$     -5,265.80
Discount factor @ 10% is not as given in the question.The given discount factor is for 15% required rate of return. So, both Discount factor @ 10% and given discount factor of 15% are used to find both Net Present Value.