Question

NPV of Individual Irregular Cash flows (no lump sum)

Answer 1

The NPV of individual irregular cash flows can be calculated by finding the present value of each cash flow and summing them up.

Step-by-step explanation:

The NPV (Net Present Value) of individual irregular cash flows can be calculated by finding the present value of each cash flow and summing them up. The present value can be determined using the formula:

PV = FV / (1 + r)^n

Where PV is the present value, FV is the future value received in the future, r is the interest rate, and n is the number of years.

For example, to calculate the NPV of the given cash flows:

1. Calculate the present value of the $15 million received in the present: PV = 15 million / (1 + r)^0
2. Calculate the present value of the $20 million received in 1 year: PV = 20 million / (1 + r)^1
3. Calculate the present value of the $25 million received in 2 years: PV = 25 million / (1 + r)^2
4. Add up the present values to get the NPV: NPV = PV1 + PV2 + PV3