NPV without discounted cashflow
Submitted by charnelle_beste... on Sat, 05/19/2012 - 14:07
Absolultely baffled!!! Calling on the PMP Elders to assist!
An upgrade of your company's financial system is estimated to save your department $ 10 000 in the first year, $ 30 000 in the second year and $ 75 000 in the third year. The cost to upgrade the system is $ 150 000 and is expected to take 15 months to implement. Given this data what is the approximate present value (PV) of this project?
A: $ 95 000
B: $ 102 000
C: $ 132 000
D: $ 252 000
Answer is B: Explanation
PV = 10 000 / (1+0.05)1, 30 000 / (1+0.05)2, 75 000 / (1+0.05)3
Now the question is, where do I get the 0.05 from????
Forums:
trawal
Sat, 05/19/2012 - 15:18
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Discount rate i.e 5% is
Discount rate i.e 5% is missing from the question. You need discount rate to get PV value.
You can easily cancel options C and D though given you can't make more than 115 (total of 10+30+75).
charnelle_beste...
Sat, 05/19/2012 - 15:40
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Discount rate i.e.3 5%
Hay Trawal, so do you agree with me that you need the Discount rate in order to calculate PV? Do you think that this question is wrongly stated?