Calculating Net Present Value

donalg1

Maybe this is the wrong place for this question but, say for instance you were calculating the NPV of a project and the investment was 200,000 with 100,000 to be paid at the beginning of year 1 and the other half during year 3. Its a 5 year project and you have the net cash flows for each year would you take the 100,000 off of year 3's net cash flow or would you take the 200,000 off at the end to get the npv as normal.

roro2

You'd have to discount each of the cash flows to the year in which they arise. It sounds like you have cash outflows of 100k in years 1 and 3, so these need to be discounted separately by reference to these years. I think this is what you're asking...

donalg1

Yeah I think that is what I was looking for, the question states that the investment was 200k with 100k being paid initially and the other 100k during year 2, however any example in the books I have only ever refer to the initial investment being paid in one instalment and this appears to be deducted at the end after the discounted rates are totalled giving the present value, then less the initial investment giving the NPV

roro2

The question sounds like its just making sure that you know to treat the two 100k separately. The second 100k could just be deducted from any positive cash flows in that year, and discount as normal.