Answer:
net present value is
$228,652.29-$200,000.00
=$28,652.29.
Explanation:
Net cashflows
Year 1= 100000
Year 2= 90000
Year 3= 95000 (75000+ 20000)
Totals= 285000
Present value at 12%
Formula for present value=
1/(1+r)^n
where r= interest rate
n= number of years
Year 1=1/(1+0.12)^1 =0.8929
Year 2=1/(1+0.12)^2= 0.7972
Year 3=1/(1+0.12)^3 =0.7118
Present value of net cash flows =
Present value × net cash flows.
Year 1= 0.8929 × 100000= $89,285.71
Year 2=0.7972 ×90000= $71,747.45
Year 3=0.7118×95000= $67,619.12
Totals = $228,652.29
Amount invested= $(200,000.00)
Net present value (NPV) is referred to as the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Net Present Value is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
Therefore, net present value is
$228,652.29-$200,000.00
=$28,652.29.
