Question

You are reviewing a new project. Your required return for assets of this risk level is 9 percent, and the estimated cash flows from the project are as follow;
(Hint: Read course material of Chap

Year                                       Cash Flow

1. -$165,000
2. 63,120
3. 70,800
4.   97200

1. Using technology (i.e. M.S. Excel®), construct the NPV profile chart that shows the trend of NPV of this project as discount rate (r) changes. (15pts)

Answer 1

NPV OF THE PROJECT = F / [ (1 + i)^n ]- INITIAL CASH

BY USING EXCEL THE NPV OF THE PROJECT CAN BE DETRMINED AS FOLLOWES

DISCOUNT RATE	9%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      1,92,555.43
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          27,555.43

NPV OF CASH INFLOWS CAN GET BY GIVING FUNCTION =NPV(RATE ,RANGE OF CASH INFLOWS)

NPV OF THE PROJECT IS THE DIFFERENCE BETWEEN NPV OF CASH INFLOW - INITIAL CASH OUTFLOW

FOR NPV PROFILING WE NEES TO CALCULATE NPV OF PROJECT WITH DIFFERENT DISCOUNTED RATE FOLLOWING THE SAME IN EXCEL

6% DISCOUNTED RATE

DISCOUNT RATE	6%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      2,04,169.91
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          39,169.91

AT 7% DISCOUNTED RATE

DISCOUNT RATE	7%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      2,00,174.27
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          35,174.27

AT 8% DISCOUNTED RATE

DISCOUNT RATE	8%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      1,96,304.53
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          31,304.53

10% DISCOUNTED RATE

DISCOUNT RATE	10%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      1,88,922.01
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          23,922.01

AT 11% DISCOUNT RATE

DISCOUNT RATE	11%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      1,85,399.54
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          20,399.54
AT 12% RATE
DISCOUNT RATE	12%
TIME PERIOD	1	2	3
CASH FLOW	63120	70800	97200
NPV OF CASH INFLOWS	$      1,81,983.51
INITIAL INVESTMENT OF THE PROJECT	$      1,65,000.00
NPV OF THE PROJECT	$          16,983.51

WHICH IS GIVEN IN A TABLE AS FOLLOWS

DISCOUNT RATE	NPV OF PR0JECT
6%	$             39,169.91
7%	$             35,174.27
8%	$             31,304.53
9%	$             27,555.43
10%	$             23,922.01
11%	$             20,399.54
12%	$             16,983.51

INSERT LINE CHART IN THE EXCEL BY SELECTION DATA RANGE