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Compute the Net Present Value (NPV)

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An alternative requires $12000 to be paid at the end of year 1, year 2, and year 3. All values are in constant dollars. Using the tables in the chapter, compute the NPV of this alternative. Round intermediate calculations to two decimal places.

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As repayment of funds is moved further out into the future, it becomes worth less in today's dollars. We call this reduced value the NPV, and find it using discount factors. Your book should provide you with a table such as this one for finding these values:

Mid year factors End of year factors
Project Constant Current ...

Solution Summary

Step-by-step calculation of the NPV for a project.

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computing the net present value (NPV)

Being taught how to compute the NPV and IRR with the following:
initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and in inventory); NWC recoverable in terminal year
Project and equipment life: 5 years
Sales: $25 million per year for five years
Assume gross margin of 60% (exclusive of depreciation)
Depreciation: straight-line for tax purposes
Selling, general, and administrative expenses: 10% of sales
Tax rate: 35%

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