Example of Net Present Calculation

Net Present Value (NPV)
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S.SIVARAM
STUDENT, India

Example of Net Present Calculation

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?

  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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