# Calculating Net Present Value in Excel

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You purchased land 3 years ago for $84000 and believe its market value is now $93000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $128000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $240000 each year, while expenses will be a mere $163405 each year. The initial working capital requirement will be $23000 which will be recovered in the last year. The tax rate is 32%. Your estimated cost of capital is 9%. What is the net present value of this project?

1. ($59,838)

2. $84,213

3. $80,495

4. $38,294

5. $90,372

6. $(67,340)

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##### Solution Summary

The following posting helps calculate net present value. The answers are given in an Excel spreadsheet.

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Cost 84,000

Market value 93,000

Hotel investment 128,000

Depreciation 3 years

Loan 60,000

Interest rate 8%

Payment 4 years

revenues 240,000

Expenses 163,405

Working capital 23,000

Tax rate 32%

Cost of capital 9%

1. Estimate yearly payment for the loan

Use the present value approach - that is the $60,000 should be equal

to the present value fo 4 payments at 8%

You can compute using trial and error OR Goal ...

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