PRC-2 · Chapter 6 · Question 8 of 45
A new tech venture requires Rs. 5 million upfront. It will generate Rs. 2 million in year 1 and Rs. 4 million in year 2. If the discount rate is 8%, what is the approximate NPV?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 0.28 million
Explanation
PV of Year 1 = 2 / 1.08 = 1.851. PV of Year 2 = 4 / (1.08)^2 = 4 / 1.1664 = 3.429. Total PV = 1.851 + 3.429 = 5.280. NPV = Total PV - Initial Cost = 5.280 - 5.000 = 0.28 million.
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