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Charles Henri is considering investing $36,000 in a project that is expected to provide him with cash inflows of $12,000 in each of the first two years and $18,000 for the following year. At a discount rate of zero percent this investment has a net present value of _____, but at the relevant discount rate of 17 percent the project's net present value is _____.

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Answer:

At a discount rate of zero percent this investment has a net present value of 6000, but at the relevant discount rate of 17 percent the project's net present value is -5739.

Explanation:

See document attached.  To get the net present value,  we make a cash-flow in excel.  

At moment  the investment is =$-36,000

Moment 1 and 2 = $12,000 /moment 3 =$18000

We calculate the Net cash flow (that is the difference between benefits and cost).

To get  net present value,  we use VNA formula.  

=VNA(required rate of return; Net cash flow from moment 0 to moment 3 )+Net cash flow at moment 0

Situation 1  

Interest rate 0%

Net Present Value (NPV) 6000  

 

Situation 2  

Interest rate 17%

Net Present Value (NPV) -5739

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