Chapter 9, Problem 1OR

Summary Introduction

To determine: The value of Net Present Value (NPV).

Introduction: NPV helps to make capital-budget decisions. It would choose an alternative or an investment to increase the value of an enterprise. Using NPV, the net benefits of an organization can be computed by finding the difference between present value of cash outflow and inflow.

Answer to Problem 1OR

Hence, the value of NPV is $416.67 million.

Explanation of Solution

Given information:

It is given that the value of net cash flow is $50 million and the discount rate is 12%.

Determine the value of Net Present Value:

It is calculated by dividing net cash flow and discount rate.

$\begin{array}{c}\text{Net Present Value}\left(\text{NPV}\right)=\frac{\text{Net cashflow}}{\text{Discount rate}}\\ =\frac{\$50\text{ million}}{12\%}\\ =\$416.67\text{ million}\end{array}$

Hence, the value of Net Present Value is $416.67 million.