Answer Posted / ashok kumar
NPV = PRESENET VALUE OF INFLOW-PV OF OUTFLOW.
IN OTHER WORDS, IF THE INCESTMENT IS MADE ONLY AT THE
BEGINNING OF THE PROJECT,NPV WILL BE CALCULATED BY
FOLLOWING FORMULAE:
NPV=[(CASH INFLOW IN 1ST YEAR X PVF1)+( XASH INFLOW IN 2ND
YEAR X PVF2)+(CASH IN FLOW IN 3RD YEAR X PVF3)
+ ...............(CASH INFLOW IN NTH YEAR X PVFn)] -
(INITIAL CASH OUTFLOW X PVF0)
IF PVF IS NOT GIVEN IN THE QUESTION, WE MAY CALCULATE NPV
AS FOLLOWS:
NPV[CASH INFLOW IN 1ST YEAR X 1/(1+r) RAISED TO POWER 1] +
[ CASH INFLOW 2ND YEAR X 1/(1+r) RAISED TO POWER 2]
+...............[ CASH IN FLOW IN NTH YEAR X 1/(1+r) RAISED
TO POWER N] - INITIAL CASH OUTFLOW X 1/(1+r) RAISED TO
POWER 0
HERE R IS RATE OF INTREST
N= EXPECTED LIFE OF THE PROPOSAL
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