Can anyone please help me with detail explanation on how to solve below question?
Your organization considers running a project which will entail an investment of $1,000,000. The product from the project is forecasted to create revenues of $250,000 in the first year after the end of the project and of $420,000 in each of the two following years. What is true for the net present value of the project over the three years cycle at a discount rate of 10%?4
o The net present value is positive, which makes the project attractive.
o The net present value is positive, which makes the project unattractive.
o The net present value is negative, which makes the project attractive.
o The net present value is negative, which makes the project unattractive.
total of inflow cash =250000+420000+420000=1090000
If simply calculate 1090000@10% discount rate for one year, will be less than of invested amount, 1,000,000.
=1090000/1.1= 990909<1,000,000.
If your concept regarding NPV is clear , you can analyse here in one year total inflow cash with given discount rate is being lesser than the outflow .
then No need to put further heavy caculations for 2yrs , 3yrs, in factored moey. It (Inflow =PV) will definitely much more lesser than (Total flow = Invested Money).
where as
Systematic calculation is like this:
0. in start of 1st year value Invested = Out flow =1000000
sspawar
Wed, 08/22/2012 - 16:09
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By straight forward can be
By straight forward can be said
Project NPV is negative and unattractive
Option D
sspawar
Thu, 08/23/2012 - 01:21
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it does not require to solve
it does not require to solve because
total of inflow cash =250000+420000+420000=1090000
If simply calculate 1090000@10% discount rate for one year, will be less than of invested amount, 1,000,000.
=1090000/1.1= 990909<1,000,000.
If your concept regarding NPV is clear , you can analyse here in one year total inflow cash with given discount rate is being lesser than the outflow .
then No need to put further heavy caculations for 2yrs , 3yrs, in factored moey. It (Inflow =PV) will definitely much more lesser than (Total flow = Invested Money).
where as
Systematic calculation is like this:
0. in start of 1st year value Invested = Out flow =1000000
Now Inflows:
1. after1year 250000---------------at 10%discount = 250000/(1+0.1)^1 ----after 1yr = 227272
2. second year -420000 ----------------10% 420000/(1+0.1)^2 ----after 2 yrs =347107.4
3. third year ----- 420000/(1+0.10)^3 -----after 3 yrs = 187828.7
NPV = - invested value +value on today of future value.
here => -1000000 +227272+347107.4+187828.7 = - 237792 Negative value . loss
hence option is D
poonfedric
Thu, 08/23/2012 - 08:21
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Thanks for your briefing...
Thanks for your briefing...
amber
Thu, 08/23/2012 - 11:44
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Thanks
Hi,
Thanks for explanation.
can you also advise me where I can find pmp prep material on NPV, disconted cashfolw, IRR, PV queestions and numericals.
Thanks again.