Lehmann Q-4 formula problem

Submitted by wmclemore on Wed, 06/19/2013 - 14:52

 


I am sure this has been asked before but have not been able to find the answer yet, so maybe someone would be kind enough to help me understand how to calculate the answer.


 






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 negative, which makes the project unattractive.

 


The answer is listed, but dont know how its calculated.


I think i understand that Present Value is 90,000


Future value is -110,068


so my real question is do you subtract Present Value by Future Value to get you Net Present value of a positive or negitive number.


 


Thanks for any help.

Forums: 
PMP / CAPM exam Question bank
  • Log in to post comments
  • 575 reads
cnppmp's picture

cnppmp

Wed, 06/19/2013 - 16:08

You have to substract sum of the present values into the initial invetsment to find out the net present value.

 

NPV=Investment - (sum of the present values)

 

Regards

CN Patil

saurabhjoshi81

Sat, 06/29/2013 - 19:45

Shuldnt it be the other way round?

NPV = Sum of present values - Investment

As for this question, NPV will come negative as investment is greater than the sum of present values.

pmpnewster

Sun, 06/30/2013 - 02:04

 

Yes, initial investment needs to be taken out from the sum of the PVs. Otherwise it will result in the wrong sign (  -ve versus +ve  and vice versa) for NPV.

    NPV = Sum of present values - Initial investment

Regards.