calculating NPV?

Question

year 0 = -(100,000) £
year 1 = 10,000
year 2 = 20,000
year 3 = 40,000
year 4 = 50,000
year 5 = 30,000

assuming opportunity cost of capital is 12%, calculate NPV.
having some difficulties with this

Answer 1

NPV is basically the equivalent value of future money at the present time;
for example, your 17,022.81 today will grow to 30,000 after 5 years at the rate of 12% a year;
NPV is calculated at V/(1+i)^t, where;
V is the value of future money
i is the interest rate at a given time interval
t is the time interval

hence, your example may be calculated as follows by summing up each NPV of respective values.


0.12 NPV
yr 0 (100,000.00) (100,000.00) = (100000)/(1.12)^0
yr1 10,000.00 8,928.57 = 10000/1.12^1
yr 2 20,000.00 15,943.88 = 20000/1.12^2
yr 3 40,000.00 28,471.21 = 40000/1.12^3
yr 4 50,000.00 31,775.90 = 50000/1.12^4
yr 5 30,000.00 17,022.81 = 30000/1.12^5
2,142.37

hence, NPV = 2,142.37 on the assumtion that the 100,000 investment was spent at the beginning of yr 0.

Answer 2

NPV (Net present value) = $180,484.26
If you have excel, you can use the NPV function, and then paste in the rate and values and have it calculated automatically.

Answer 3

Net Present Value: 907.61