# NPV Question

Submitted by AnuMahesh on Mon, 10/04/2010 - 14:51

Assume a discount rate of 2% per year and an investment of 100.000€. You expect to receive revenue of 20.000€ in the first year and 45.000€ in the second year. What is the approximate projected Net Present Value (NPV) of your investment at the end of year two?

A. -37.000 €

B. -35.000 €

C. -36.000 €

D. -34.000 €

Answer is B. Can someone please help explain how it was arrived at

Forums:

gtejwani

Mon, 10/04/2010 - 15:49

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## NPV Question

Net present value is more accurately the present value of the net revenues from an investment, which is revenues minus investment. See the following example:

PaymentCash inflowCommentNet revenues (2y):€-35,000AnuMahesh

Mon, 10/04/2010 - 16:35

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## Correction

Sorry.. the correct answer was 37,155 which was option 1...Would you know how?.

Below was the explanation. Can't figure out how the NPV was reached and what formula

Year Expense Revenue Discount NPV

----- ------- ------- -------- ---------

0 100,000 0 1.000 -100,000

1 0 20,000 0.980 19,600

2 0 45,000 0.961 43,245

--------

?NPV -37,155gtejwani

Tue, 10/05/2010 - 04:19

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## NPV Question

Hi,

For more informatin visit

http://pmi.books24x7.com/viewer.asp?bkid=32027&destid=978#978

here we are calculating

PV=Fv/(1+r)n

for 1 st year

Cash flow =20,000/(1+.02)

=19607

here n = 1

for 2nd year n=2

=45000/(1+.02)2

=45000/1.0404

=43253

PaymentYearCash inflowDiscounted cash flowInvestment:0$-100,000-100,000Revenue year 1:1$20,00019,607Revenue year 2:2$45,00043,253

Total revenues (2y): $65,00062,859.60

Net revenues (2y):$-35,00037,140(NPV)gtejwani

Tue, 10/05/2010 - 04:34

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## NPV Question Correction

Hi,

For more informatin visit

http://pmi.books24x7.com/viewer.asp?bkid=32027&destid=978#978

here we are calculating

PV=Fv/(1+r)n

for 1 st year

Cash flow =20,000/(1+.02)

=19607

here n = 1

for 2nd year n=2

=45000/(1+.02)2

=45000/1.0404

=43253

Payment Year Cash inflow Discounted cash flow Investment: 0 $ -1,00,000 -1,00,000 Revenue year 1: 1 $ 20,000 19,607 Revenue year 2: 2 $ 45,000 43,253 Total revenues (2y): $ 65,000 62,860 Net revenues (2y): -35,000

-37,140(NPV)

PaymentYearCash inflowDiscounted cash flow