2) An alternative requires $14500 to be paid monthly over the course of year 1,

Question

2) An alternative requires $14500 to be paid monthly over the course of year 1, year 2, year 3 and year 4. All values are in constant dollars. Using the tables in the chapter, compute the Net Present Value (NPV) of this alternative. Round intermediate calculations to two decimal places.

A) $633,412
B) $653,788
C) $696,000
D) $662,070


              4 Year Project

Project   Constant Dollars   Current Dollars
Year         (2.55%)           (4.90%)
--------------------------------------------
1           0.9875            0.9764
2           0.9629            0.9308
3           0.9390            0.8873
4           0.9156            0.8458


Please provide your calculations. 2) An alternative requires $14500 to be paid monthly over the course of year 1, year 2, year 3 and year 4. All values are in constant dollars. Using the tables in the chapter, compute the Net Present Value (NPV) of this alternative. Round intermediate calculations to two decimal places.

A) $633,412
B) $653,788
C) $696,000
D) $662,070


              4 Year Project

Project   Constant Dollars   Current Dollars
Year         (2.55%)           (4.90%)
--------------------------------------------
1           0.9875            0.9764
2           0.9629            0.9308
3           0.9390            0.8873
4           0.9156            0.8458


Please provide your calculations.

Explanation / Answer

PMT (monthly) = 14,500 On yearly basis, 14,500*12 = 174,000 NPV is sum of cash flows times by present value interest factor. Using constant dollars value, we have NPV = 174,000*0.9875+ 174,000*0.9629 + 174,000*0.9390 + 174,000*0.9156 NPV = $171,825 + $167,544.6 + $163,386 + $159,314.4 NPV = $662,070 Option D is correct.

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