# Net Present Value

| May 22, 2015

The below example is to be in Excel format.

Based on the information provided below, compute the Net Present Value of the project (CO 3).Â  A Net Present Value Template is Attached.Â  (Hint: Don’t forget to update the discount rate to the amount required for this project and add your cash flow numbers.)

Royal Dutch Shipping is planning on Investing \$1,600,000 to buy a freighter.Â Â  Prepare a net present value analysis based on the assumption that the freighter will be sold for 10% of its cost at the end of the year 5.Â Â  Assume a 10% cost of capital.Â  Annual operating cash flows for the project are:

Year 1:Â Â  \$380,000
Year 2:Â Â  \$390,000
Year 3:Â Â  \$400,000
Year 4:Â Â  \$410,000
Year 5:Â Â  \$420,000

Prepare a loan amortization schedule based onÂ monthlyÂ payments for the \$1,600,000 if Royal Dutch Shipping can pay 10% down on a loan for \$1,600,000 and can get a loan for 6% interest for 10 years (do not include this in your Net Present Value computations.Â  This is a separate issue.Â  (CO 3).Â  (Hint:Â Â www.bankrate.com/calculators/mortgages/amortization-calculator.aspxÂ )

 NPV example Discount rate 16% Year Cash in (out) PV factors PV of cash flows 0 Â Â Â Â Â Â Â Â Â Â Â Â  (80,000) 1.0000 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  (80,000) 1 Â Â Â Â Â Â Â Â Â Â Â Â Â Â  20,000 0.8621 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  17,241 2 Â Â Â Â Â Â Â Â Â Â Â Â Â Â  18,000 0.7432 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  13,377 3 Â Â Â Â Â Â Â Â Â Â Â Â Â Â  22,500 0.6407 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  14,415 4 Â Â Â Â Â Â Â Â Â Â Â Â Â Â  10,000 0.5523 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  5,523 5 Â Â Â Â Â Â Â Â Â Â Â Â Â Â  30,000 0.4761 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  14,283 Net Present Value Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â  Â  (15,161) Internal rate of return 7.81%

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