Your organization is launching a project which will include an investment of $2,000,000. The product from the project is forecasted to create revenues of $500,000 in the first year after the end of the project and of $840,000 in each of the two following years. What is true for the net present value of the project over the three years cycle at a discount rate of 20%?

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Business

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28 November, 23:24

Your organization is launching a project which will include an investment of $2,000,000. The product from the project is forecasted to create revenues of $500,000 in the first year after the end of the project and of $840,000 in each of the two following years. What is true for the net present value of the project over the three years cycle at a discount rate of 20%?

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Anne Hanna · Answer 1

Net present value = $89,128.6

Explanation:

To determine whether or not the investment was right, we will need to determine the net present value of the investment (NPV).

The NPV is the difference between the prsent value (PV) of cash inflows and the PV of cash outflows.

PV of cash inflows $

Year 1 = 500,000 * (1.02) ^ (-1) = 490196.1

Year 2 840,000 * (1.02) ^ (-2) = 807381.8

Year 3 - 840,000 * (1.02) ^ (-3) = 791550.8

Total present value 2,089,128.62

Net present value (NPV) = $2,089,128.62 - $2,000,000.

= $89,128.6