## Calculation of Net Present Value

A new tower in New York City has just opened up. Your company is considering investing 2,000,000 $ in buying the property and renting it for the next 5 years. By the end of each year, your company would get 200,000 $ because of renting. At the end of year 5, your company will sell the property for 2,100,000 $. What is the Net Present Value of the investment with a 10% per annum discount rate?

A. -231.857 $

B. 156.986 $

C. 62.090 $

D. 51.689 $

PMP Solution 32

NPV= dicounted inflows – discounted outflows. We have 2.000.000 $ as initial investment. We need to discount all the inflows by 10%. The formula is PV=FV/(1+discount rate)^period. So for year 1, we will have PV1=200.000/1,1^1= 181.818. For year 2, PV2=200.000/1,1^2= 165.289. For year 3, PV3=200.000/1,1^3= 150.262 .For year 4, PV4=200.000/1,1^4= 136.602. For year 5, PV5=2.300.000/1,1^5= 1.428.119. So the sum of all PVs are 2.062.090 less the initial investment (2.000.000) is 62.090 $. [PMBOK 6th edition, Page (not clearly included) 473] [Project Procurement Management].

Special mention to Jose S Morales for helping improving this community by reviewing this question.

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