NPV example: An initial investment in a project is Tshs 100,000,000. The target or required rate of return is 12%. The expected cash inflows are as 60M,50M and 45M for year 1,2 and 3 respectively find the project's NPV.
To calculate the Net Present Value (NPV) of the project, we need to discount the expected cash inflows at the required rate of return (12%).
NPV = (60,000,000/(1+0.12)^1) + (50,000,000/(1+0.12)^2) + (45,000,000/(1+0.12)^3) - 100,000,000
NPV = 53,571,428.57 + 44,642,857.14 + 33,482,142.86 - 100,000,000
NPV = 31,696,428.57
Therefore, the project's Net Present Value (NPV) is Tshs 31,696,428.57. This means that the project is expected to generate a positive return of Tshs 31,696,428.57 after accounting for the initial investment and the required rate of return.