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Chapter 20

Question 3

NPV

Calculate the NPV of the following cash flows at a discount rate (cost of capital)
of 8%.

Year $
t0 (25,000)

t1 10,000
t2 9,000

t3 8,000
t4 5,000

Year $ Discount PV
factors 8%

0 (25,000) 1 (25,000)

1 10,000 0.926 9,260
2 9,000 0.857 7,713
3 8,000 0.794 6,352

4 5,000 0.735 3,675
NPV 2,000

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