Question

A recent project nominated for consideration at your company has a four-year cash flow of $20,000; $25,000; $30,000; and $50,000. The cost of the project is $75,000.If the required rate of return is 20%, conduct a discounted cash flow calculation to determine the NPV.What is the benefit-cost ratio for the project?

Answer 1

Answer:

NPV 501.54

benefit-cost ratio: 1.0066872

Explanation:

discount rate 0.2

$\frac{Maturity}{(1 + rate)^{time} } = PV$

$\frac{20000}{(1 + 0.2)^{1} } = PV$

$\frac{25000}{(1 + 0.2)^{2} } = PV$

$\frac{30000}{(1 + 0.2)^{3} } = PV$

$\frac{50000}{(1 + 0.2)^{4} } = PV$

# Cashflow Discounted

0 -75000 -75000

1 20000 16666.67

2 25000 17361.11

3 30000 17361.11

4 50000 24112.65

NPV 501.54

PV ratio of the project: PV of cashflow / PV of outflow

75,501.54/75,000 = 1,0066872