00:01
Question asks you evaluating a project with the following cash flow with initial investment negative 10 and expected cash flow for year three are 12, 17, and 13 and all the cash flow are a million of dollars.
00:17
What is the project's npv? so the npv is the net present value.
00:25
This can be calculated by this formula.
00:27
The sum of the cash flow at the time divided by 1 plus r.
00:35
The r is the discount value to the power of t.
00:39
So t is the time, the time period i would say.
00:43
Then the sum minus initial investment.
00:48
So this will be the present value minus the initial investment.
00:53
Now, so since you have a three year period, so you have to calculate each year separately.
01:00
Year number one, you have a cash flow of 12 million and one plus the wacc discount of a company is 15%, but 15 % must be converted to decimal, which is 0 .15.
01:17
You basically take 15 % divided by 100.
01:20
This will give you the decimal.
01:21
And the first year, the time period obviously is 1.
01:26
So basically 12 divided by 1 .15...