1.2. Assume you need to evaluate an ecotouristic project. Each year the project requires maintenance costs...

Q1.

Given,

(Note that costs are negative flows and benefits are positive flows)

Net cash flow in year 1 = -$1,000

Net cash flows in years 2 through 5 = -$200 + $500 = $300

Market Interest rate = 5% per year

From the compound interest table, we obtain

(P/F, 5%, 1) = 0.9524

(P/A, 5%, 4) = 3.546

Net Present Value of the above cash flow = Net Cash flow in year 1 x (P/F, 5%, 1) + Net cash flow in year 2 through 5 x (P/A, 5%, 4) x (P/F, 5%, 1) = -$1,000 x 0.9524 + $300 x 3.546 x 0.9524 = -$952.4 + $1,013.2 = $60.8

Ans: $60.8

Q2.

Net cash flow in year 1 = -$800

Net cash flows in years 2 through 5 = -$250 + $500 = $250

Net Present Value of the above cash flow = Net Cash flow in year 1 x (P/F, 5%, 1) + Net cash flow in year 2 through 5 x (P/A, 5%, 4) x (P/F, 5%, 1) =-$800 x 0.9524 + $250 x 3.546 x 0.9524 = -$761.92 + $844.30 = $82.38

Ans: $82.38