NPV Question

[thefox916]

Hello All,

Some help would be appreciated:

A company pays $120,000 to purchase a property. The company pays $3,000 at the end of each
of the next 6 months to renovate the property. At the end of the eigth month, the company sells
the property for $150,000. Find the net present value of this project for the company at an annual
effective rate of 8%.

The Answer is supposed to be 4896.52

I get 4900.80


This what I did:

Solved for i-monthly= .00643

-120000-3000a(6,.00643)+150000(1.00643)^-8

[LifeIsAPoissonProcess]

Probably rounding error. Using the CF function on a BA2+:

CF 0 = -120,000
CF 1 = -3,000, F1 = 6
CF 2 = 0, F2 = 1
CF 3 = 150,000, F3 = 1

NPV = (1.08)^(1/12), -1, *100

Down Arrow

Enter.

[Anthemyst]

Rounding error, pure and simple. You could store the i-monthly in your calculator so it goes to 15 digits or whatever, that's what I did and I got the 'correct' answer, redid your calculations and got 4900.8 as well. The exam would probably round that to 4900 anyway, I wouldn't worry about it.

[LifeIsAPoissonProcess]

Originally Posted by Anthemyst

Rounding error, pure and simple. You could store the i-monthly in your calculator so it goes to 15 digits or whatever, that's what I did and I got the 'correct' answer, redid your calculations and got 4900.8 as well. The exam would probably round that to 4900 anyway, I wouldn't worry about it.

+1 ... store and recall are your friends. If you want to watch an inspirational movie on the importance of not rounding, I would watch Office Space.

[thefox916]

Thank you!

[thefox916]

How about help on another one?

Chris is investing 1,000 at the beginning of each year into Fund A. Fund A earns interest at a nominal interest rate of 12% compounded monthly. Fund A pays Chris interest monthly. Chris reinvests that interest in Fund B earning an annual effective rate of 8%. Calculate the total amount in Fund A and Fund B after 10 years.

The manual has an answer of: 18774.42

What I did:

I applied the formula AV= P(n + i([s(n+1,j)-(n+1)]/j)

Where:
n=10
i= .12/12 = .01
j= .08/12 = .00666667
P=1000


Resulting in an AV of: 10561.16