A project which requires an initial outlay of RM9,000 will produce the following annual inflows: Table 1: Annual inflows for 3 years consecutively. Year Annual inflows 1 RM2,000 2 RM4,000 3 RM6,000 If the discount rate is 8% per annum, calculate the NPV (Net present value) of the project.

A project which requires an initial outlay of RM9,000 will produce the following annual inflows: Table 1: Annual inflows for 3 years consecutively. Year Annual inflows 1 RM2,000 2 RM4,000 3 RM6,000 If the discount rate is 8% per annum, calculate the NPV (Net present value) of the project.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 27P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A project which requires an initial outlay of RM9,000 will produce the following
annual inflows:

Table 1: Annual inflows for 3 years consecutively.

Year Annual inflows
1 RM2,000
2 RM4,000
3 RM6,000

If the discount rate is 8% per annum, calculate the NPV (Net present value) of the
project.

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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