Page 311 - BA2 Integrated Workbook STUDENT 2018

Answers to supplementary objective test questions

14.4 The NPV is $35,710.

The discount factor for 8.5% is not given in the present value tables, so the
formula must be used to calculate the discount factor:

–1
Year 1: discount factor = (1 + 0.085) = 0.9217
–2
Year 2: discount factor = (1 + 0.085) = 0.8495
–3
Year 3: discount factor = (1 + 0.085) = 0.7829
–4
Year 4: discount factor = (1 + 0.085) = 0.7216

Year Cash flow Discount factor Present value
($000) ($000)
0 (350) 1 (350.00)

1 100 0.9217 92.17
2 150 0.8495 127.43

3 120 0.7829 93.95
4 100 0.7216 72.16

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NPV = 35.71
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