Present value

Submitted by vijayavadrevu on Wed, 05/15/2013 - 02:33

 An upgrade of your company's  financial system is estimated to save your department $10,000 in the first year, $30,000 in the second year and $75,000 in the 3rd year. The cost to upgrade the system is $150,000 and is expected to take 15 months to implement . Given this data, what is the approximate present value (PV) of this project?

A)$95,000

B)$102,000

C)$132,000

D)$252,000

 

Can someone help in solving the problem? What should be r, rate of interest

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PMP / CAPM exam Question bank
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crushPMP's picture

crushPMP

Wed, 05/15/2013 - 03:07

Mathematically this cannot be solved if r is not given. The other way to get r is to use excel and calculate the Internal Rate of Return where Net cash Inflows = Net Cash Outflows and the NPV of the project is 0.

Otherwise, my guess is as good as anybody's guess!

vijayavadrevu

Wed, 05/15/2013 - 03:17

 Answer is given as B. Rate of interest is given as 5%, which I am not able to understand. 

bkthakkar

Wed, 05/15/2013 - 16:10

With excel, u can determine within few seconds. But since in the exam only normal calculator will be done and therefore, within 1 min manual determination is not possible. Therefore suggest to avoid at this point of time