CA Foundation · Quantitative Aptitude · Mathematics of Finance
A project requires an initial outlay of ₹1,00,000 and returns ₹60,500 at the end of year 1 and ₹72,600 at the end of year 2. Taking the discount rate as 10% per annum, what is the Net Present Value (NPV) of the project?
The NPV is ₹15,000. Discounting ₹60,500 for one year gives ₹55,000 and discounting ₹72,600 for two years gives ₹60,000, a total present value of ₹1,15,000. Subtracting the ₹1,00,000 outlay leaves a positive NPV of ₹15,000.
- A₹20,000Correct
- B₹33,100
- C₹10,000
- D₹13,100
Explanation
PV of year 1 = 60,500/1.1 = 55,000. PV of year 2 = 72,600/1.21 = 60,000. Total PV = 1,15,000. NPV = 1,15,000 - 1,00,000 = ₹15,000. Recheck: 72,600/1.21 = 60,000 and 60,500/1.1 = 55,000, so sum is 1,15,000, NPV = 15,000.
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