For the following set of cash flows, Year 0 1 123 Cash Flow -$ 7,300 3,400 3,900 3,900 a What is the NPV at a discount rato

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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For the following set of cash flows,

| Year | Cash Flow |
|------|-----------|
| 0    | -$7,300   |
| 1    | $3,400    |
| 2    | $3,900    |
| 3    | $3,900    |

a. What is the NPV at a discount rate of 0 percent?

[NPV Calculation Field]
Transcribed Image Text:For the following set of cash flows, | Year | Cash Flow | |------|-----------| | 0 | -$7,300 | | 1 | $3,400 | | 2 | $3,900 | | 3 | $3,900 | a. What is the NPV at a discount rate of 0 percent? [NPV Calculation Field]
### Calculating NPV at Different Discount Rates

#### b. Calculating NPV at a Discount Rate of 10%

To determine the Net Present Value (NPV) at a discount rate of 10%, enter the required data in the provided text box.

*Input Field:*
- NPV: [_____]

#### c. Calculating NPV at a Discount Rate of 20%

Similarly, to find the NPV at a discount rate of 20%, fill in the necessary information in the text box below.

*Input Field:*
- NPV: [_____]

### Explanation

The NPV calculation involves assessing the present value of future cash flows given a specified discount rate. For each scenario above, you need to compute the NPV using the stated discount rates of 10% and 20%.

For further context on how to calculate NPV, consider the formula:
\[ \text{NPV} = \sum \left( \frac{\text{Cash Flow}_t}{(1 + r)^t} \right) - \text{Initial Investment} \]

where:
- \( t \) is the time period,
- \( r \) is the discount rate (0.10 for 10% and 0.20 for 20%),
- \(\text{Initial Investment}\) is the upfront cost of the investment.

These calculations are crucial in financial planning, allowing investors to assess the profitability of an investment. Ensure accurate data input for precise computation.
Transcribed Image Text:### Calculating NPV at Different Discount Rates #### b. Calculating NPV at a Discount Rate of 10% To determine the Net Present Value (NPV) at a discount rate of 10%, enter the required data in the provided text box. *Input Field:* - NPV: [_____] #### c. Calculating NPV at a Discount Rate of 20% Similarly, to find the NPV at a discount rate of 20%, fill in the necessary information in the text box below. *Input Field:* - NPV: [_____] ### Explanation The NPV calculation involves assessing the present value of future cash flows given a specified discount rate. For each scenario above, you need to compute the NPV using the stated discount rates of 10% and 20%. For further context on how to calculate NPV, consider the formula: \[ \text{NPV} = \sum \left( \frac{\text{Cash Flow}_t}{(1 + r)^t} \right) - \text{Initial Investment} \] where: - \( t \) is the time period, - \( r \) is the discount rate (0.10 for 10% and 0.20 for 20%), - \(\text{Initial Investment}\) is the upfront cost of the investment. These calculations are crucial in financial planning, allowing investors to assess the profitability of an investment. Ensure accurate data input for precise computation.
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