Operating Cash Flows

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Joyce
Student (MBA), United States

Operating Cash Flows

What is the NPV of a project that has cost of 52,125 and net cash flows of 12,000 per year for 8 years with a cost of capital of 12 percent?

Rating

 1
Mukela Namushi Mubano
Accountant, Zambia

Operating Cashflows

12,000 x 4.968 (discount factor) = 59,616.
NPV = 59,616 - 52,125 = 7,491
The project could be undertaken since the NPV is positive. However, one should not overlook the qualitative effects of deciding to go ahead with the project.

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KATHRYN STEINER, MBA
Entrepreneur, United States

NPV - Question on Calculating Discount Factor

How did you calculate the discount factor of 4.968?

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Mark May
Student (University), United States

Calculating Discount Factor

The discount factor is arrived from (p/a, i, n) using compound interest table, where under p/a I = 12, n=8.
Or in Excel =pv(i, n,-1) which is = pv(.12,8,-1) = 4.9676.

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KATHRYN STEINER, MBA
Entrepreneur, United States

Caculating Discount Factor

Right, finding the present value. Pv = fvn/(1+1)n
Thanks for the clarification.

 1
Management Fan
Analyst, Philippines

NPV for Capital Budgeting

The IRR is 16% which is higher than the discount factor use - 12%. In addition your payback period is around 4.35 year.