Question
NPV example: An initial investment in a project is Tshs 100,000,000. The target or required rate of return is 12%. The expected cash inflows are as 60M,50M and 45M for year 1,2 and 3 respectively find the project's NPV.
Answers
GPT 3.5
To calculate the Net Present Value (NPV) of the project, we need to discount the expected cash inflows at the required rate of return (12%).
NPV = (60,000,000/(1+0.12)^1) + (50,000,000/(1+0.12)^2) + (45,000,000/(1+0.12)^3) - 100,000,000
NPV = 53,571,428.57 + 44,642,857.14 + 33,482,142.86 - 100,000,000
NPV = 31,696,428.57
Therefore, the project's Net Present Value (NPV) is Tshs 31,696,428.57. This means that the project is expected to generate a positive return of Tshs 31,696,428.57 after accounting for the initial investment and the required rate of return.
NPV = (60,000,000/(1+0.12)^1) + (50,000,000/(1+0.12)^2) + (45,000,000/(1+0.12)^3) - 100,000,000
NPV = 53,571,428.57 + 44,642,857.14 + 33,482,142.86 - 100,000,000
NPV = 31,696,428.57
Therefore, the project's Net Present Value (NPV) is Tshs 31,696,428.57. This means that the project is expected to generate a positive return of Tshs 31,696,428.57 after accounting for the initial investment and the required rate of return.