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Formula Net Present Value The formula for Net Present Value is: FV (1+i)n 1 PV = Present Value FV = Future Value 1 = Interest N = No of years FV Formula Net Present Value A retailer is looking to buy a mobile bus to sell their item. To purchase the van and to kit into a mobile shop will cost 250,000. The profit each year 85K 95K and 120K, for the next three years. The discount rate is 5% Year 1 Year 2 Year 3 Total 85,000 95,000 120,000 300,000 Interest (1+05)1 (1+0.5) 2 (1+0.5) 1.05 1.05 x 1.05 1.05 x 1.05 x 1.05 1.05 1.1025 1.157625 85,000 95,000 120,000 1.05 1.1025 1.157625 NPV 80,952 86,168 103,661 230,000 Present value (PV) is showing 300,000 which is good because there is a 50,000 profit after 3 years. The Net Present Value (NPV) is lower than the 250,000 initial investment which is actually a loss. A manufacturer is looking to purchase a piece of equipment for 10,000. The annual income is 3,000 in yr 1, 4,000 in Yr 2 and 5,000 in year 3. The discount rate is 7% because this is what can be earned if the money was put into a high interest generating account. work out the Net Present Value of this investment for each year and for the total of all years. Make recommendations on whether to go ahead and purchase this equipment or not. You must explain and Justify your answers