> #net-present-value , #cash-flow , #investment > Jane invests R1 500 000 in a new shop. Her cash flows for the next five years are expected to be as follows R610 000, 500 000, R100 000, R800 000 and R750 000. The NPV (net present value) of her inve?
Anonymous
Nov 6, 2023

Jane invests R1 500 000 in a new shop. Her cash flows for the next five years are expected to be as follows R610 000, 500 000, R100 000, R800 000 and R750 000. The NPV (net present value) of her inve?

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Nov 6, 2023
To calculate the net present value (NPV) of Jane's investment, we need to discount each cash flow to its present value and then sum them up.

Assuming a discount rate of 10%, we can calculate the present value of each cash flow as follows:

Year 1: PV = R610,000 / (1 + 0.10)^1 = R610,000 / 1.10 = R554,545.45
Year 2: PV = R500,000 / (1 + 0.10)^2 = R500,000 / 1.21 = R413,223.14
Year 3: PV = R100,000 / (1 + 0.10)^3 = R100,000 / 1.331 = R75,019.88
Year 4: PV = R800,000 / (1 + 0.10)^4 = R800,000 / 1.4641 = R546,448.09
Year 5: PV = R750,000 / (1 + 0.10)^5 = R750,000 / 1.61051 = R465,116.28

Now, we can sum up the present values of all the cash flows:

NPV = R554,545.45 + R413,223.14 + R75,019.88 + R546,448.09 + R465,116.28
NPV = R2,054,352.84

Therefore, the net present value (NPV) of Jane's investment is R2,054,352.84.
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