Question

What is the Net Present Value of the following cash flow stream?

Year	Cash Flow
0	-$489
1	$363
2	$192
3	$161
4	$256

Assume an interest rate of 13%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. If your answer is negative, enter your answer as a negative number rounded off to two decimal points.

Answer 1

NPV is sum of present value of all cash flows.              
Present value of cash flows = cash flows * PVF              
              
PVF formula = 1/(1+Discount rate)^period              
For year 1, PVF = 1/(1+13%)^1=   0.8849557522          
For year 2, PVF = 1/(1+13%)^2=   0.7831466834          
and so on.              
              
              
Year   cash inflows   PVF@13%   PV of cash flows  
year 0   -489   1   -489.00  
Year 1   363   0.8849557522   321.24  
Year 2   192   0.7831466834   150.36  
Year 3   161   0.6930501623   111.58  
year 4   256   0.6133187277   157.01  
              
NPV=           251.19  
NPV is positive   251.19          
So project should be accepted              

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