Answer:
1. $501.54
2. 1.01
3. -$5,728.56
Explanation:
The calculations are detailed below:
1. For determining the net present value
Year Cash flow Discount factor @20% Present value
0 $75,000 1 $75,000
1 $20,000 0.8333333333 $16,666.67
2 $25,000 0.6944444444 $17,361.11
3 $30,000 0.5787037037 $17,361.11
4 $50,000 0.4822530864 $24,112.65
The total of cash inflows is $75,501.54
NPV $501.54
The discount factor is to be calculated as follows:
= 1 ÷ (1 + rate) ^ years
2. The benefit-cost ratio is calculated by:
= Total Present Value ÷ Initial Investment
= $75,501.54 ÷ $75,000
= 1.01
3. For net present value as calculated
Year Cash flow Discount factor @20% Present value
0 $75,000 1 $75,000
1 $20,000 0.8064516129 $16,129.03
2 $25,000 0.650364204 $16,259.11
3 $30,000 0.5244872613 $15,734.62
4 $50,000 0.4229735978 $21,148.68
The sum of cash inflows is $69,271.44
NPV -$5,728.56
The discount factor is to be computed as stated:
= 1 ÷ (1 + rate) ^ years
