00:01
The question it is given that the company has nominated our recent project which is going to cost them $75 ,000.
00:08
And for the next four years, they are going to have some sort of cash flows that we have already mentioned in this table.
00:14
That is in the column number two, we have cash flows for the four different years.
00:20
And it is given that the required rate of return of the company is 20%.
00:25
So we need to find out the first of all, npv of the project.
00:30
So what we are going to do is we are going to make this cash flows at their present values so for that we will be multiplying this cash flow with their present value factor and that can be calculated with this formula 1 divided by 1 plus r to the power n where this r refers to required return rate and that is given to be 20 % so for the first year the required return rate if converted to its present value factor this is going to be 0 .8 similarly for the second year this is going to be 0 .694 for the third year this is going to be 0 .579 and finally for the fourth year this is going to be 0 .48 so now what we will be doing is we will be multiplying this cash flows of respective year's cash flows with the respective present value factor and we will be putting those values in the our last column that is present value of cash flow.
01:29
So 20 ,000 times 0 .833 will give us $16 ,660.
01:36
Similarly, 25 ,000 times 0 .694 is going to get us $17 ,350.
01:45
Similarly, for the third year, the present value of their cash flow is going to be 17 ,370.
01:51
And the fourth year, this is going to be 24 ,100.
01:55
Now, if we total this present value of cash flows, so there's some, is going to be $75 ,480.
02:05
So this is the present value of all the cash flows for the four years...