Example of Net Present Calculation

Net Present Value (NPV)
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S.SIVARAM
STUDENT, India
Consider the following two investments: Investment 1 requires a cash investment of $ 10,000 today and $14,000 two years from now. One year from now this investment will yield $24,000. Investment 2 requires a cash investment of $ 6,000 today and $1,000 two years from now. One year from now this investment will yield $8,000. Calculate the NPV and find the better investment. What is your answer? (...) Read more? Sign up for free

  Robert Fullsome
Accountant, United States
 

You Forgot Discount Rate

You can't solve this problem unless there is a discount rate. I could calculate IRR, but not NPV. Try again.

  Jaap de Jonge
Editor, Netherlands
 

Net Present Value Calculation Requires Discount Rate

@Robert Fullsome: Thanks for sharing your opinion. I agree Net Present Value calculation requires applying a discount rate to compensate for the cost of capital. Without a discount rate you can not calculate the proper NPV of any investment.

 

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