Question

You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:

End of Year   A   B   C
1   $1,000   $3,000   $5,000
2   2,000   3,000   5,000
3   3,000   3,000   (5,000)
4   -4,000   3,000   (5,000)
5   4,000   6,000   15,000

What is the present value of each of these three investments if the appropriate discount rate is 15 percent?

Answer 1

Project A

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the discount rate of 15%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 15% discount rate is $4,056.10.

Project B

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the discount rate of 15%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 15% discount rate is $11,547.9945 $11,548.

Project C

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the discount rate of 15%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 15% discount rate is $9,439.85.

In case of any query, kindly comment on the solution.