Consider a project with net benefits NBt in period t: NB0 = 30, NB1 = 15, NB2

Question:

Consider a project with net benefits NBt in period t: NB0 = –30, NB1 = 15, NB2 = 25, NB3 = –3.

a. Find the net present value if the discount rate is r = 6%, 8% and 10%.

b. Now assume that the discount rate changes across periods. In specific, the discount rate for period 1 (discounting from period 1 to period 0) is r1 = 10%, the discount rate for period 2 (discounting from period 2 to period 1) is r2 = 8% and the discount rate for period 3 (discounting from period 3 to period 2) is r3 = 6%. Find the net present value.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...