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Net Present Value Analysis

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Submitted By rosariol1
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You have been asked to support analysis of acquisition decisions involving net present value analysis.

1. You are analyzing the net present value of a project over a 16 year period. Based on the rates in the textbook, what is the actual discount rate you would use given that your analysis must consider the effects of inflation/deflation?

In analyzing the pet present value of a project over a 16 year period, the inflation rate must be included in the computation of the discount rate to be used. This means that the nominal rate be adjusted for the inflation rate to arrive at the real interest rate which is then used as the discount rate.

2. What is the present value of $25,000 that you will receive at the end of two years?

Given that there was no information provided for the discount rate, I assumed a discount rate of 10%, hence Present value of $25,000 to be received 2 years from now = $25,000/[(1+10%)^2] = $20,661.16

3. What is the present value of $2,000 a month over the next 3 years?

4. What is the net present value of a lease that requires you to pay $10,000 at the beginning of each year for the next five years and includes a provision for a rebate of $5,000 at eh end of Year 5?

5. What is the net present value of an item that has a purchase price of $20,000, requires $1,000 maintenance at the end of each year except year 4, and is expected to have a salvage valueof $1,000 at the end of the 5 year useful...

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