Solved Question: A 4-year financial project is forecast to have a net cash inflow of \$ 20, 000

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Question:

A 4-year financial project is forecast to have a net cash inflow of \$ 20, 000; \$ 25, 000; \$ 30, 000; and \$ 50, 000 in the next 4 years. it will cost \$ 75, 000 to implement the project, payable at the beginning of the project. If the required rate of return is 0.2, conduct a discount cash flow calculation to determine the NPV.

 Year Cash Flow PV Factor @ 0.2 PV 0 (\$ 75,000) 1 (\$75,000) 1 \$ 20,000 0.833333333 \$16,666.67 2 \$ 25,000 0.694444444 \$17,361.11 3 \$ 30,000 0.578703704 \$17,361.11 4 \$ 50,000 0.482253086 \$24,112.65 NPV \$501.54

Calculation of PV Factor:

PV factor = 1/ (1+r)n

r = Rate of interest = 0.2

n = No. of period

Year 0:

PV factor = 1/ (1 + 0.2) 0 = 1/ (1.2)0 = 1

Year 1:

PV factor = 1/ (1 + 0.2) 1= 1/ (1.2)1 = 0.833333333

Year 2:

PV factor = 1/ (1 + 0.2) 2= 1/ (1.2)2 = 1/ 1.44 = 0.694444444

Year 3:

PV factor = 1/ (1 + 0.2) 3= 1/ (1.2)3 = 1/ 1.728 = 0.578703704

Year 4:

PV factor = 1/ (1 + 0.2) 4= 1/ (1.2)4 = 1/ 2.0736 = 0.482253086

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