Need help understanding Rita's calculations of Net Present value on her table in page 106 of her seventh edition book

Submitted by niland123 on Fri, 02/22/2013 - 12:18
niland123's picture

 Hi 

 

can someone pls explain to me the method of calculations in Rita's seventh edition Exam prep on pg 106. She gives an example of calculating the NPV, and says you need to calculate both percent value of income and cost figures using the PV (present value formula ) which I am familiar with but can't make sense of her table. 

 

If anyone has Rita's fourth edition please have a loom at pg 106 and help. I just want to understand it.

 

thank you

Eda

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sspawar

Sat, 02/23/2013 - 04:34

1 2 3 4 5 6
TIME
PERIOD		 INCOME PV
(today value) of income
= FV/(1+R)^n		 COST
(investment)		 PV
(today value) of Cost
= FV/(1+R)^n		 Net Present
Value, (profit on today)
= PV of Income - PV of Cost
(Col 3- Col 5)
CASH
INFLOW		 CASH
OUT FLOW
FUTURE (THAT
TIME )
VALUE		 (THEN
VALUE)
Today 0 0 0 200 200 -200
After 1year 1 50 45 100 91 -46
After 2year 2 100 83 0 0 83
After 3year 3 300 225 0 0 225
Net Present Value, (profit on today) = PV of Income - PV of Cost 353   291 62

sspawar

Sat, 02/23/2013 - 04:55

it can be done like this also 

col 4 - col 2
(then profit)		 NPV
-200 -200
-50 -45
100 83
300 225
NPV 63
   
       

sunitaPMP

Fri, 03/15/2013 - 04:40

Hello Pawarji,

i do not understand col4-col2.

is it col2-col4?