Question

Q-2. Compute the Net Present Value for a project with net investment of Rs.1,00,000 and the
following cash flows if the company cost of capital is 10%. Net cash flows for year one is
Rs.55,000; for the year two is Rs.80,000 and for the third year is Rs. 15,000.(PVIF @10% for the
three years are 0.909, 0.826 and 0.751).​

Answer 1

So, first of all, you need to calculate the present value of each year at 10% rate which comes out to be 0.909 for year one, 0.826 for year two, and 0.751 for year 3.

Year Net Cash

Flow Present Value (10%) Cash Flow (Discount)

0 1,00,000 1.000 1,00,000

1 55,000 0.909 49,995

2 80,000 0.826 66,080

3 15,000 0.751 11,265

Net Present Value ============================= 27,340

Since, the value is positive, the company should look forward to accept the proposal.

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