Question

Proka is evaluating two projects for investment purposes. The required return for each project is 8 percent and the cash flows are listed below:

YEar	Project A	Project B
	Cash flow in $	Cash Flow in $
1	100	300
2	400	400
3	400	400
4	400	400
5	300	100

1. Calculate the net present value for each stream

2. Calculate the net present value of each cash flow stream at 0 percent discount rat

Answer 1

a.Project A

NPV of future cash flows is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= 0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 8%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,251.25.

Project B

NPV of future cash flows is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= 0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 8%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,300.32.

b.Project A

NPV of future cash flows is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= 0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,600

Project B

NPV of future cash flows is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= 0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $1,600.

In case of any further queries, kindly comment on the solution.