1. Net Present Value
• A person purchase a van for 1000 today
and rent it out for staff transportation
service. For five years he will receive 300,
300, 400, 450 and 800 per year. Construct a
cash flow statement. Rate of interest 10%.

2. Year 0 1 2 3 4 5
Cash Outflows
Investment -1000
Cash Inflows
Revenue 300 300 400 450 800
Total -1000 300 300 400 450 800
1.10 1.1-1 1.1-2 1.1-3 1.1-4 1.1-5
Discount rate
=1 =.909 =.826 =.751 =.683 =.621
Dis. C/F -1000 272.7 247.8 300.4 300.4 496.8
Net Present Value @ 10%, NPV = 568

3. Net Present Value
Year Total Cash Discount rate Discounted
Flow Cash Flow
(Rs) (@10%)
0 -1000 1.10 = 1 -1000
1 300 1.11 = 0.909 272.7
2 300 1.12 = 0.826 247.8
3 400 1.13 = 0.751 300.4
4 450 1.14 = 0.683 307.35
5 800 1.15 = 0.621 496.8
Total 625.05
Net Present Value @ 10% - 568

4. CF1 CF2
NPV CF0 (1 i ) (1 i ) 2 .... CFr
(1 i ) r
...
NPV | CF0 | CF j ( P / F , i %, j )
where j = 0 to n
Free Cash Salvage |CF0| : initial cash flow
flows
Rs
Value (an outlay) which is a
. negative
Time Horizon Time
Amount to be
Invested