FinanceJones Corp is evaluating a project that has the following annual free cash flows: Period 0 1 2 Free Cash Flow −150 100 150 If the project's discount rate is 12%,

Question

Jones Corp is evaluating a project that has the following annual free cash flows: Period 0 1 2 Free Cash Flow −150 100 150 If the project's discount rate is 12%, then what is the NPV of the project?

Answer 1

you can actually use a NPV function in Excel but its more valuable to learn the details

A dollar today is worth far more than a dollar tomorrow is the premise you need to start with

the 150 comes out immediately so its -150 to the NPV. The future flows of +100 and +150 are then discounted by (1.12) and (1.12)^2 to come up with your final number

-150+89.28 (100/1.12)+119.57 (150/1.12^2) for an final NPV of $58.59

Hope this helps

Neil