Question 8.P.1: Compute the net present value (NPV) of the following cash fl......
Compute the net present value (NPV) of the following cash flows:
The interest rate is 15% per year, compounded annually.
| End of Year | 0 | 1 | 2 | 3 | 4 | 5 |
| Cash Flow, $1000 | -6 | 4 | 2 | -3 | -2 | 3 |
Step-by-Step
By (8.1),
NPV\ =\ -|CF_0|\ +\ \sum\limits_{j=0}^{n}{CF_j(P/F,\ i\%,\ j)} (8.1)NPV = -$6000 + $4000(P/F, 15%,1)+ $2000(P/F, 15%,2)
– $3000(P/F, 15%, 3) – $2000(P/F, 15%, 4)+ $3000(P/F, 15%, 5)
= -$6000 + $4000(1.1500)^{-1} + $2000(1.3225)^{-1}
-$3000(1.5209)^{-1} – $2000(1.7490)^{-1} + $3000(2.0114)^{-1}
= -$2633.99
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