1. Use a 5 percent discount rate to compute the NPV of each of the following series of cash receipts
and payments.
a) $6,200 received now (year 0), $1,890 paid in year 3, and $4,000 paid in year 5.
b) $10,000 paid now (year 0), $12,690 paid in year 2, and $31,000 received in year 8.
c) $20,000 received now (year 0), $13,500 paid in year 5, and $7,500 paid in year 10.
Solution
For calculating the discounted rate please refer to the present value of $1 factor table at 5% rate
A)
B)
C)
T Cash inflow/outflow Discount rate 5% NPV
0 $6200 1.000 $6200
3 ( 1890) 0.86384 (1633)
5 (4000) 0.78353 (3134)
Net present value $1433