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    Marie3 Posts: 3, Reputation: 1
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    Feb 17, 2008, 08:13 AM
    How do you find the NPV using the Net Present Value Method?
    What is the NPV for a project if the cost capital is 12% and the initial after-tax cost is $5,000,000 and is expected to provide after-tax operating cash flows of $1,800,000 in year 1, $1,900,000 is year 2, $1,700,000 in year 3, and ($1,300,000) in year 4?

    The PVIF table is below:
    Yr 1% 2% 3% 4% 5% 6% 8% 10% 12%
    1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893
    2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797
    3 0.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.712
    4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636

    Using the Net Present Value Method,I came up with the answer of -1,494,700. I first used my PVIV table that was supplied for the 12% interest which was 0.893 for year 1, 0.797 for yr2, 0.712 for yr 3, & 0.636 for yr 4. I then multiplied each amount by the appropriate PVIF amount from the PVIF table (ex. 1,800,000 X 0.893= 1,607,400). Which gave me 1,607,400 for yr 1, 1,514,300 for yr 2, 1, 210,400 for yr 3, & -826,800 for yr 4. I then added up -5,000,000 for yr 0, and the other cash flows and came up with -1,494,700. Is this correct? I wasn't sure if I should calculate the initial after-tax cost of the 5,000,000 as a positive or negative number. If you added up with a positive instead of a negative number, you come up with 8,505,300, but I think the -1,494,700 is correct. Can someone check my answer. Thanks

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