New 55% Off on All Courses - Enroll Now! Click Here

    Question

    With project cost of Rs.300 lakh and cost of capital at

    12%, the estimated profits over its lifetime of 5 years are Rs.10 lakh, Rs.10 lakh, Rs.30 lakh, Rs.40 lakh and Rs.50 lakh respectively. If the discount factors @ 12%, for the first five years are 0.89, 0.80, 0.71, 0.64 and 0.57 respectively, what is the net present value of project?
    A Rs.92.30 lakh Correct Answer Incorrect Answer
    B Rs.140 lakh Correct Answer Incorrect Answer
    C Rs.(-) 160.40 lakh Correct Answer Incorrect Answer
    D Rs.(-)207.70 lakh Correct Answer Incorrect Answer
    E Rs.392.30 lakh Correct Answer Incorrect Answer

    Solution

    Net present value (NPV) = present value of inflows – initial investment Calculating PV of inflows:

    Inflow (profits) Discount factor Present Value
    10,00,000 0.89 8,90,000
    10,00,000 0.80 8,00,000
    30,00,000 0.71 21,30,000
    40,00,000 0.64 25,60,000
    50,00,000 0.57 28,50,000
    Total 92,30,000
    NPV = 92.30 – 300 lakh = -207.70

    Practice Next