# NPV Question

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 €

### 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:

 Payment Cash inflow Comment Investment: € -100,000 Expense, therefore negative Revenue year 1: € 20,000 Revenue year 2: € 45,000 Total revenues (2y): € 65,000 Net revenues (2y): € -35,000 Total revenues minus investment

 Discount rate: A high discount rate favors quick win projects. A low discount rate favors expansive projects.

### 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 -37,155

### NPV Question

Hi,

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

PaymentYear

Cash inflow

Discounted cash flow

Investment:0\$-100,000-100,000Revenue year 1:1\$20,00019,607Revenue year 2:2\$45,00043,253

Total revenues (2y): \$65,00062,859.60Net revenues (2y): \$-35,00037,140

(NPV)

### NPV Question Correction

Hi,

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)

PaymentYear

Cash inflow

Discounted cash flow