Question

2. A project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent?

Please show all work preferably with the formulas, not just the grid. Thank you

Answer 1

Year	Cash flow	Discount factor	Present value
a	b	c=1.16^-a	d=b*c
0	$        -9,500	1.0000	$ -9,500.00
1	$         3,200	0.8621	$   2,758.62
2	$         3,200	0.7432	$   2,378.12
3	$         3,200	0.6407	$   2,050.10
4	$         3,200	0.5523	$   1,767.33
5	$         5,700	0.4761	$   2,713.84
Net present value			$   2,168.02
Working:
Discount factor is calculated for year 1 as follows:
	Discount factor	=	1.16^-a		Where,
		=	1.16^-1		a	1
		=	0.8621
Discount factor for all years are calculated similarly.