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CA Foundation · Quantitative Aptitude · Mathematics of Finance

A project costs ₹1,00,000 and yields cash inflows of ₹60,000 at the end of year 1 and ₹72,600 at the end of year 2. The cost of capital is 10% per annum. What is the net present value (NPV) of the project?

The NPV is about ₹14,545. Discount each inflow at 10%: 60,000/1.1 gives 54,545 and 72,600/1.21 gives 60,000, totalling 1,14,545. Subtracting the outlay of ₹1,00,000 leaves a positive NPV of roughly ₹14,545.

  1. A₹14,545
  2. B₹20,000Correct
  3. C₹10,000
  4. D₹32,600

Explanation

PV of year 1 inflow = 60,000/1.1 = 54,545.45. PV of year 2 inflow = 72,600/1.21 = 60,000. Total PV = 1,14,545.45, so NPV = 14,545.45, which is about ₹14,545. Option ₹32,600 is the undiscounted surplus, ignoring discounting.

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