Net Present Value

Perform a financial analysis for a project using the Net Present Value method. Assume the projected costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $100,000 each year in Years 2, 3, and 4.

(1) Use a 9 percent discount rate and round the discount factors to two decimal places. Calculate the NPV and the year in which payback occurs. (2) Explain in plain language what the NPV means in this context.