Npv Problems And Solutions Pdf

The caveat, however, is that conducting such analyses still requires an appropriate choice for a discount rate of interest in the first place. If you add this to the 15%, then you will have the IRR. 000 (100,000) Annual net cash inflows 1-5 80,000 3. Net present value (NPV) It is a discounted cash flo w technique (DCF). I am in the market to buy another car. 8 Capital Budgeting Techniques (NPV, PI, IRR, MIRR, PP, and DPP) 1. Dear Tom: Optimistically, the NPV of acquiring Pinkerton is $106. Net Present Value is the most important tool in capital budgeting decision making. Today’s Business Challenges. Explain the NPV profi le, compare and contrast the NPV and IRR methods when evaluat-ing more than one capital project, and describe the multiple IRR and no IRR problems that can arise when calculating an IRR. The 5As – assessment, awareness, association, adherence and ascendancy – are the steps to take. 10 years For an initial cost of $4,450, the payback period is: Payback = 5. Example: A company is studying the feasibility of acquiring a new machine. One is Multiple IRR and the other one is the impractical assumption of reinvesting positive cash flows at the rate of project IRR. It has an estimated life of 5 years after which it would be disposed off (scrap value nil). Contents: Ch. This page contains sample questions for tutoring business students in the management of corporate finance and the evaluation of projects using the net present value method. IRR expresses itself as a percentage measure of project performance; it also. Net Present Value - NPV: Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. The expected stock price is 24. Net Present Value Concerning NPV: a. Value1, value2, are 1 to 29 arguments representing the payments and income. Corporate Finance, Final Exam Practice Questions, NPV *Question 1. What are the issues? • What cash flows do we use while evaluating projects? - Incremental cash flows - Sunk costs - Opportunity costs. The Basics of Capital Budgeting. The cost of the optimum flow solution, $8045. Problem 1: ABC Ltd. The ‘‘No Solution Problem’’ At times one may obtain no solution at all. This content was COPIED from BrainMass. The time value of money is probably. The investor's problem is to choose the "best" portfolio P. Evaluation period. 00 - Purchase. Calculate the present value of each cashflow using a discount rate of 7%. • Net present value (NPV) is the difference be- tween today’s value of the added returns and today’s value of the added costs. A hard copy of your solution (clearly indicating your student number and the student name in the. What is the balance in an account at the end of 10 years if $2,500 is deposited today and. FIN2360 Practice Problems #4 SOLUTIONS Problem 1 The Angell company is evaluating the proposed acquisition. Portfolio Choice in the CAPM World A. This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. For many years, analysts in real estate have used their own variants on valuation models to value real estate. The respondents included firms that own or manage over 310 million square feet of commercial space in NYC. The concept of inflation for a single product is the price change for that product over time. Understanding Financial Management: A Practical Guide Problems and Answers Chapter 8 Capital Budgeting 8. The application allows the users to input all mine design, geological, mining method, activity dimensions and lengths, mining rates, scheduling rules, and team configuration information and generate a production schedule. Details PDF Specifications Price USD20. In figure 2, there is an initial investment of $150. CHAPTER 5 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA OVERVIEW This chapter reviews the NPV rule for capital budgeting. Savage was Professor o f Statistics at Yale University. , new plants and equipment, real estate). The After-Tax Cash Flow (ATCF ) is found for the each year by deducting the Income Tax Liability for that year from the Cash Throw Off. FIN2360 Practice Problems #4 SOLUTIONS Problem 1 The Angell company is evaluating the proposed acquisition. Problem solve Get help with specific problems with your technologies, process and projects. ) Note to students: In problems involving the internal rate of return calculation, a financial calculator has been used. In order to compute the NPV of a project, we need to analyze 1. maximize the Net Present Value of a combination of investment opportunities. includes a discussion of criteria used to evaluate the effectiveness of regulatory and non-regulatory approaches to pollution control. MIDTERM EXAM SOLUTIONS Finance 70610 – Equity Valuation Mendoza College of Business Professor Shane A. NPV calculates the net present value (NPV) of an investment using a discount rate and a series of future cash flows. Earnings next year = $100 million × 10% = $10 million or $2 per share. In a typical decision problem ≽ on A is not completely known and therefore a solution model is needed. Fama University of Chicago This paper attempts to explain how the separation of security own- ership and control, typical of large corporations, can be an efficient form of economic organization. Introduction to Real Options We introduce real options and discuss some of the issues and solution methods that arise when tackling these problems. Er P=T • σ B. We also need to remember that some acquisitions are related to physical assets and some assets may be sold after the merger. In the inventory policy models, Invent1 and Invent2, we compare the EOQ (Economic Order Quantity) with the optimal solution determined by the Solver. Only VMware delivers a self-driving operations solution that provides all the features and functionality you need in a single IT cloud management platform — reducing costs and eliminating silos created by individual tools. Given that all the projects have positive NPV therefore it is beneficial to select all the projects I. 2 Project NPV versus required rate of return 148 8. If so, NPV becomes the basis for a decision to buy a fixed asset. Projects and processes with the greatest NPV is usually the winner. Chapter 10 Grazing Lands Economics National Range and Pasture Handbook 10–10 (190-vi, NRPH, September 1997) (b) Key points to understanding NPV and IRR. xlsx Ch 02 Annuity - Ready-To-Build. 4 The Internal Rate of Return 9. Probability, Expected Payoffs and Expected Utility • In thinking about mixed strategies, we will need to make use Monty Hall’s 3 Door Problem • There are. 1 Payback period 494 1. Today, Singleton called the bond. The ability to evaluate mutually exclusive projects using the NPV rule may be asked as well. Get Firefox for Windows, macOS, Linux, Android and iOS today!. Net present value is greater than the cost of investment B. Suppose that the account has an annual interest rate of compounded times per year, so that is the interest rate per compounding period. Again, DO NOT USE the charts in the book! This will work for. NPV analysis. The cost of the optimum flow solution, $8045. Answer Scooter. Left Middle Left Down The Nash equilibrium is de ned by mutually consistent best responses: therefore fdown, leftgis the unique Nash equilibrium of the game. Present Value and Future Value Tables Table A-1 Future Value Interest Factors for One Dollar Compounded at k Percent for n Periods: FVIF. Problem # 1: The Zee manufacturing company produces a single product which goes through one process only. Decisions on investment, which take time to mature, have to be based on the returns which that investment will make. At a required return of 11 percent, should the firm accept this project? What if the required return is 25%? - 595642. From the following data, you are required to calculate break-even point and net sales value at this point: If sales are 10% and 25% above the break even volume, determine the net profits. 1 Main features of RADR and CE techniques 117 8. 1 (Simple interest). Time Value of Money. hp calculators HP 10BII Discounted cash flow – Net Present Value hp calculators - 2 - HP 10BII Discounted cash flow – Net Present Value - Version 1. Employee Stock Options Gary Levin is the CEO of Moutainbrook Trading Company. The advantage of considering the NPV over the Payback Period is that it takes into consideration the future value of money. Practice Problem #3 a) Net Present Value Net Investment Profitability index Project 1 $87,270 $480,000. The net present value profile indicates that there are conflicting rankings at a discount rate less than the intersection point of the two profiles (approximately 15%). NPV is useful in capital budgeting for analysing the profitability of a project investment. Net Present Value(NPV) is a formula used to determine the present value of an investment by the discounted sum of all cash flows received from the project. Many problems require multiple steps. The QALY calculation is simple: the change. The management activities include: setting priorities, defining objectives, project. The highest net present value is found with Paint Inc. Will and John 2 The reaction functions are the following. The ability to evaluate mutually exclusive projects using the NPV rule may be asked as well. includes a discussion of criteria used to evaluate the effectiveness of regulatory and non-regulatory approaches to pollution control. Solutions to Problems Note to instructor: In most problems involving the IRR calculation, a financial calculator has been used. Net present value (NPV): Net present value is the difference between the present value of cash inflows and the present value of cash outflows that occur as a result of undertaking an investment project. Copying from another person or solution set is not permitted. 5 April 8, 2011 Solution to (2) Answer: (D) The prices are not arbitrage-free. Net Present Value – Swanson Industries has four potential projects all with an initial cost of $2,000,000. Appraisal Institute Mathematics and Analytical Skills Review 9. Terblanche2 1 TU Berlin, Institute of Mathematics bley@math. V S0 = 9:8859 d. One solution to both problems is to calculate a range of NPV numbers using different discount rates and forecasts, so that one can generate, for example, best, worst and median case NPV numbers, or even a probability distribution for the NPV (possibly using something like a Monte-Carlo approach). Net Present Value Method Equal Annual Cash Flows Illustration 12-8 The proposed capital expenditure is acceptable at a required rate of return of 12% because the net present value is positive. Weaknesses. higher the NPV the more attractive is the investment in the project. Payback Period (PB), Net Present Value (NPV), Internal Rate of Return (IRR), and Modified Internal Rate of Return (MIRR). The sales director. The flexibility to stop,. 5M NPV 1 ROI 1 80% optimized utilization at DellEMC 3 300% increase in data center capacity for scale and agility at CNRA 2. The future value formula shows how much an investment will be worth after compounding for so many years. 30, has positive flows on only one cycle. 0 - Chapter Introduction In this chapter, you will learn to use net present value analysis in cost and price analysis. 2 15,000 9,000. These three amounts can be combined to determine the NPV: Net initial investment; $110,000 1. We also acknowledge previous National Science Foundation support under. In the inventory policy models, Invent1 and Invent2, we compare the EOQ (Economic Order Quantity) with the optimal solution determined by the Solver. Apply these shortcuts to impress your interviewer with outstanding mental math skills. 1 Net present value profiles for projects A and B 100 7. Npv and irr formula quiz questions and answers pdf, in independent projects evaluation, results of internal rate of return and net present value lead to, with answers for business analyst certification. Depreciation is used to estimate thebook value of an item at some point in time. The cash flows consist of a mixture of costs and benefits occurring over time. Without further treatment, this patient will die in about 3 months. A case study is a story about something unique, special, or interesting—stories can be about individuals, organizations, processes, programs, neighborhoods, institutions, and even events. Weighted Average Cost of Capital The weighted average cost of capital (WACC) is a common topic in the financial management examination. Included are solutions to problems in lending, forecasting, pricing,. Since the NPV of Option 2 is higher than the NPV of Option 1, the firm will choose to sell the old equipment and purchase new equipment in five years. com - View the original, and get the already-completed solution here!. differences in cash flow is equal to zero – in other words, the IRR of the differences. Included are solutions to problems in lending, forecasting, pricing,. Probability, Expected Payoffs and Expected Utility • In thinking about mixed strategies, we will need to make use Monty Hall’s 3 Door Problem • There are. The NPV must always be positive. To show that Mary's portfolio yields arbitrage profit, we follow the analysis in Table 9. The present value of annuity formula relies on the concept of time value of money, in that one dollar present day is worth more than that same dollar at a future date. Solutions to Present Value Problems Problem 11 Annuity given current savings of $ 250,000 and n=25 = $ 17,738. Finance Problems and Finance Homework Solution for NPV. NPV is useful in capital budgeting for analysing the profitability of a project investment. The $5 million is a sunk cost: whether or not the firm goes ahead with the new product, the $5 million has been spent. The application allows the users to input all mine design, geological, mining method, activity dimensions and lengths, mining rates, scheduling rules, and team configuration information and generate a production schedule. NPV vs IRR - Planning to make an investment decision? Confused how to know its profitability? Well there are two most important approaches which are used and they are NPV (Net Present Value) and IRR (Internal Rate of Return). terblanche@nwu. Corwin Fall Semester 2007 Wednesday, November 21, 2007 INSTRUCTIONS: 1. 2 Project NPV versus required rate of return 148 8. 8 Capital Budgeting Techniques (NPV, PI, IRR, MIRR, PP, and DPP) 1. 19 + $65,104. Solutions to Present Value Problems Problem 11 Annuity given current savings of $ 250,000 and n=25 = $ 17,738. Then a tornado diagram could be constructed showing how the selected performance measure varies over the range of values for the inputs. Because of this, the NPV is called a "difference amount". The timing and growth rate of the incoming cash flow is important only to the extent of its impact on NPV. projects 1 and 2 are mutually exclusive). 4%, discounted monthly, what was the initial price of the car?. Net Present Value is an evaluation method used by financial managers to determine the overall value of a project (or a series of cash flows). NPV is the present value of proceeds minus present value of outlays. The option premium is the NPV of the rst stage, which is 5e 0:2+10e 2(0:2) 15 = 4:20. For the primary barrier, located directly at the international border, the landing mat fencing system was found to have the lowest life-cycle cost. 97 and reject the project. Decision analysis in general assumes that the decision-maker faces a decision problem where he or she must choose at least and at most one option from a set of options. PRINCIPLES OF FINANCE. PROJECT AND INVESTMENT APPRAISAL FOR SUSTAINABLE VALUE CREATION 7 of an organization. , incorporating language into contract to mitigate known risks). xlsx Ch 04 NPV Using General Discounting - Ready-To-Build. APPLICATION OF THE INTEGRAL II: FUTURE AND PRESENT VALUE OF A CONTINUOUS INCOME STREAM Let us review some basic formulae from a few weeks ago involving the return on money deposited in a bank paying a given rate of interest. Before tax cost of debt is 12. NPV = –$320. As the Challenge problems demonstrate, the analysis of net present value is the same whether you have one future cash flow or many. Since it was established five years ago it has gradually increased its range of plain and cheese biscuits. Finance Problems and Finance Homework Solution for NPV. John will receive $10,000 in four years, and is wondering what it is worth now using an annual discount rate of 12. I generally categorize material by the three basic approaches to valuation - discounted cash flow valuation, relative valuation and option pricing applications on valuation. A firm invests $200,000 in machinery that yields net after-tax cash flows of $90,000 at the end of each of the next three years. application of an experimental design technique to the problem of uncertainty quantification and risk analysis for petroleum exploration and exploitation projects. Understand the importance of a common time horizon 3. _For mutually exclusive projects, take the one with positive and highest NPV. The timeline looks like this: R = 5. NPV analysis is a form of intrinsic valuation and is used extensively across finance and accounting for determining the value of a business, investment security,. • Present value is simply the value of today’s dollar. The ability to evaluate mutually exclusive projects using the NPV rule may be asked as well. Determine and analyze expansion’s Cash flow, NPV, IRR: Item 1 to 10 were calculated using the simple data for projections, available in exhibit 5. 1 Answer to 1. Answer Bella. Our main example is the Simplico gold mine example from Luenberger. Simple Decision – One Decision Node and Two Chance Nodes. A manufacturer produces items that have a probability of. There are two basic ways to solve the multiple IRR problem. Or the MPV is the sum of these present values. Distributed Decision Making: The Adaptive Enterprise 2040 Visions of Process Systems Engineering Symposium on the Occasion of George Stephanopoulos's 70th Birthday and Retirement from MIT B. Cash flows 2. The net present value profile indicates that there are conflicting rankings at a discount rate less than the intersection point of the two profiles (approximately 15%). If so, NPV becomes the basis for a decision to buy a fixed asset. Other Related Functions. having to deal with relatively advanced NPV calculations which may include problems such as inflation, taxation, working capital and relevant/irrelevant cash flows. creemers@ieseg. Calculator. Companies are challenged by a lack of business agility and the inability to focus and align resources on business priorities. ICT Business Case Guide | 6 At a glance: Your First Pass Business Case provides Cabinet with its first opportunity to consider whether to use ICT to meet its policy and service delivery objectives. This Solutions Handbook has been designed to supplement the HP-12C Owner's Handbook by providing a variety of applications in the financial area. Then NPV 1 =39,315 and NPV 2 = −7,270. NPV biopesticide results invariably in reduced pesticidal action and failure to control the pests when used in the field. Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the entire life of an investment discounted to the present. Net Present Value $ ( 44,250) * present value factor of annuity at 12%, 12 years. Press A PV of cash inflows; NPV PVn = PMT × (PVIFA15%,8 yrs) PVn = $18,000 × 4. Why it is important 2. With Dell | Cloudera Apache Hadoop Solutions, accelerated by Intel, performance, operations,. 756 10,584 3 16,000 0. Capital Structure in a Perfect Market Chapter Synopsis 14. The NPV calculation is one method analysts use to decide whether a potential project, or investment, can add value to the firm. – Net present value method offers a convenient tool during appraisal of any given project. NPV shows the value of a stream of future cash flows discounted back to the present by some percentage that represents the minimum desired rate of return, often a company's cost of capital. The sales director. Example with Taxes (Problem in Word File "Capital Budget with tax example") Discount Rate 10% Tax Rate 30% CCA Rate 20% Keep Old Machine Item Cash Flows Tax Effect After Tax Periods NPV. For this exercise enter the following formula. Establishment costs – Koa to 1. Use a 34 percent tax rate throughout. Assuming conventional cash flows, if a project has a positive NPV for a certain discount rate, then it. The assessment instrument and its solution (containing numerical values, formulas, and functions) are provided in Appendix A. Integer programming formulation examples Capital budgeting extension. The management activities include: setting priorities, defining objectives, project. Use the following formula where PV = the present value of the future cash flows in question. This article will help decision makers determine which of these two evaluation methods—NPV or IRR—is better for evaluating mutually exclusive projects. But we accepted project 2 and not project 1! Discounted Payback Period. Viswanathan LECTURE 10 THE ADJUSTED NET PRESENT VALUE METHOD FUQUA SCHOOL OF BUSINESS DUKE UNIVERSITY BA 351 CORPORATE FINANCE. AGENCY PROBLEMS IN CORPORATE FINANCE Abstract I investigate: (i) Agency problems between debt and equity holders, and their impact on capital structure and investment policy; (ii) Agency problems between firm managers and capital providers. 658 10,528 4 18,000 0. , (2017), Moments And Distribution Of The Npv Of A Project INFORMS, Houston, USA Rostami S. 1 USING THE MANUAL This manual describes a number of procedures used to produce H. original value) in which the solution of the problem does not change. 2 15,000 9,000. 1 Payback period 494 1. Payback Period/Net Cash Flow/NPV Questions -- Please explain Submitted by manuspmp on Fri, 10/23/2009 - 18:23 The following should be used for questions 15 through 17. If optimal solution has obj = 0, then original problem is feasible. For the secon- dary barrier, the Sandia fencing system resulted in the lowest life-cycle cost. Problems and Solutions in Mathematical Finance Volume I: Stochastic Calculus is the first of a four-volume set of books focusing on problems and solutions in mathematical finance. Full book available. Lorie and Leonard J. Npv and irr formula multiple choice questions and answers (MCQs), npv and irr formula quiz answers pdf to learn BBA finance online courses. So instead, we want to calculate the first cash flow by itself. The NPV rule’s competitors— the book rate of return, the payback period and the internal rate of return (IRR)—are discussed. Identifying the causal factors driving distress in financial markets is no easy task. The only closed form. Future Value of $1. Following is the formula of net present value. For example, if project #1 has a 3 year time horizon and project #2 has a 5 year time horizon, it will be necessary to analyze the investment opportunities over a 15 year period. (a) The project's value next year P is perfectly correlated with the security, i. Chapter 7 Internal Rate of Return 105 agree on paying this fee by borrowing the additional 2% under the same terms as the new loan, what percentage rate would make the new loan attractive, if the conditions require her to repay it in 120 payments? Solution The amount to be refinanced: i = 12/12 = 1%. For those looking for additional problems to test the understanding of the material, I have posted problem sets, and their solutions, on Canvas in the folder “Additional Problems. Solutions to Problems. xlsx Ch 03 NPV Using Constant Discounting - Ready-To-Build. Net present value 494 590 As net present value of project is more than that of project X after taking into consideration the probabilities of cash inflows. The concept of inflation for a single product is the price change for that product over time. 19 + $65,104. 0 The time value of money application The time value of money application built into the HP 10BII is used to solve compound interest problems and annuities that involve regular, uniform payments. Capital Budgeting Procedures The evaluation of capital budgeting projects follows long established protocols usually involving any of the following procedures: net present value (NPV), internal rate. Each method has its own strengths and weaknesses. This happens on projects which give profits at a slower pace, but these projects may benefit in enhancing the overall value of the organization. If you're up for the challenge of helping people achieve their financial goals, financial planning is the career for you. Usually, these capital investment projects are large in terms of scope and money, such as purchasing an expensive set of assembly-line equipment or constructing a new building. It happens two times at year 0 and the end of year 5. Or the MPV is the sum of these present values. The net present value profile indicates that there are conflicting rankings at a discount rate less than the intersection point of the two profiles (approximately 15%). 5 Net Present Value and Other Investment Criteria ch. We can picture the bond’s cash flows as follows: 100% 7% 7% 7% 7% 7%. What is a business plan? A business plan is a comprehensive, written description of the business of an enterprise. ICT Business Case Guide | 6 At a glance: Your First Pass Business Case provides Cabinet with its first opportunity to consider whether to use ICT to meet its policy and service delivery objectives. At the end of 8-year period, the machine would have no salvage value. Problem solving - use acquired knowledge to solve for net present value in practice problems Interpreting information - verify that you can read information regarding the importance of NPV and. Future Value of $1. Many regulators value the flexibility and fast implementation of voluntary agreements. Understand the concept of internal rate of return (IRR) and its relationship to NPV. In other words, it’s used to evaluate the amount of money that an investment will generate compared with the cost adjusted for the time value of money. Understand the concept of net present value (NPV) A. The 5As – assessment, awareness, association, adherence and ascendancy – are the steps to take. This formula is used in most cases for annuities. 1 Main features of RADR and CE techniques 117 8. It was developed during the design and construction of the Polaris submarine in the USA in the 1950s, which was one of. All capital investment appraisals have a single objective – drive towards a positive NPV. I am in the market to buy another car. (For this example, use cell B57. Only VMware delivers a self-driving operations solution that provides all the features and functionality you need in a single IT cloud management platform — reducing costs and eliminating silos created by individual tools. The NPV calculation is one method analysts use to decide whether a potential project, or investment, can add value to the firm. Comparing investments shows how to compare the past performance of two investments. The expected stock price is 24. This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. Appraisal Rules Throughout this course, we have stated that the value of the asset is the discounted present value of the asset's cash flows. And your choice is all-or-nothing, not an initial choice followed by more choices as information becomes available. Practice Problem #3 a) Net Present Value Net Investment Profitability index Project 1 $87,270 $480,000. Present Value and Future Value Tables Table A-1 Future Value Interest Factors for One Dollar Compounded at k Percent for n Periods: FVIF. SOLUTIONS Page 2 of 7 4. Stage in the capital investment projects 500 3. Net Present Value(NPV) is a formula used to determine the present value of an investment by the discounted sum of all cash flows received from the project. What is internal rate of return? The IRR is the rate at which the project breaks even. NPV profile NPV sensitivity matrix NPV sensitivity graph. 3-8-1 Komaba, Meguro, Tokyo 153-8902, Japan. Solution: A retirement account is a sinking fund since you are making periodic deposits. Left Middle Left Down The Nash equilibrium is de ned by mutually consistent best responses: therefore fdown, leftgis the unique Nash equilibrium of the game. TraderCode Technical Indicators historical data download updated Contacts. In general, the cycle length is Q/a. Outside of this range, the solution will change (to lower the value of the basic variable for reductions and increase its value of increases in its objective function coe cient). Professor, The University of Tokyo. It is considered to be the best single criterion. What would the present worth of all the stocks be if they yield a. Reviewing the main practical usability problems of business economics. This conclusion could have been derived by referring to NPV tables and reading off the NPV factor at 10% for year one ie: 0. Reading 7 LOS 7a: Calculate and interpret the net present value (NPV) and the internal rate of. Details PDF Specifications Price USD20. Net Present Value is the discounted value of all cash flows. Problem No. Probability, Expected Payoffs and Expected Utility • In thinking about mixed strategies, we will need to make use Monty Hall’s 3 Door Problem • There are. 2 Non-relevant costs 501 4. A similar problem is when a project gives a faster-paced result for a short period of time. The solution to the dynamic optimization of a natural resource would be a schedule or “time path” indicating the 1. Problems and Solutions in Mathematical Finance Volume I: Stochastic Calculus is the first of a four-volume set of books focusing on problems and solutions in mathematical finance. 18 Project 2 $73,400 $360,000. Download Mozilla Firefox, a free Web browser. To learn more, sign up to view selected examples online by functional area or industry. The After-Tax Cash Flow (ATCF ) is found for the each year by deducting the Income Tax Liability for that year from the Cash Throw Off. The $5 million is a sunk cost: whether or not the firm goes ahead with the new product, the $5 million has been spent. We also acknowledge previous National Science Foundation support under. If the net. EE266 Homework 2 Solutions 1. DCF is center stage when decision makers and investors evaluate potential investments, action proposals, or purchases. Problem No. ) Suppose that the appropriate discount rate is a constant 10% per period. Client Problem: A global mining company wanted better insight into the financial exposures at their operations world wide as a result of political, regulatory or security risk. Calculating Net Present Value in Excel Net present value is calculated using a discount rate (which may represent an interest rate or the rate of inflation) and a series of future payments (negative values) and income (positive values). The paper is intended for researchers in information systems, technology solutions, and business management, and also for information specialists, project managers, program managers, technol-ogy directors, and information systems evaluators.