IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Project appraisal
A project requires an outlay of ₹1,00,000 now and pays ₹60,000 at the end of each of the next two years. Using a discount rate of 10% per annum effective, what is the net present value of the project?
The NPV is ₹4,132.23. Discount each ₹60,000 inflow at 10%, giving a present value of about ₹1,04,132.23, then subtract the ₹1,00,000 outlay. The positive result means the project earns more than 10%.
- A₹1,04,132.23
- B₹4,132.23Correct
- C₹1,403.13
- D₹20,000.00
- -₹4,132.23
Explanation
NPV = 60,000 × (1/1.1 + 1/1.21) − 1,00,000 = 60,000 × 1.735537 − 1,00,000 = 1,04,132.23 − 1,00,000 = 4,132.23. The figure ₹1,04,132.23 is only the present value of the inflows and omits the outlay. ₹1,403.13 comes from discounting at 12% instead of 10%.
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