2 net present value ex
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1. A cash flow statement was constructed for a van purchased for Rs. 1000 that was rented out for 5 years. Revenue was received each year between Rs. 300-800. 2. Using a 10% discount rate, the net present value was calculated to be Rs. 568, indicating the investment was profitable. 3. Net present value analysis discounts future cash flows to determine if the present value of future cash flows exceeds the initial investment amount.
2 net present value ex
- 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