Create a time value of money Excel spreadsheet for the following two investments

Question

Create a time value of money Excel spreadsheet for the following two investments: A. Initial investment ($100,000); Forecasts: Year 1 payback ($25,000); Year 2 payback ($25,000); Year 3 payback ($25,000) B. Initial investment ($100,000); Forecasts: Year 1 payback ($20,000); Year 2 payback ($25,000); Year 3 payback ($40,000) Use a re-investment rate of 10%. Calculate Net Present Value (=NPV) for each investment and specify which investment is the most profitable. (You are not required to use the Excel (=NPV) formula but you will find it to be the easiest and most accurate means of calculating Net Present Value.)

Explanation / Answer

NPV(A)=-100000+(25000*2.48685) -37828.75 PVOA F 19%. 4 yrs.=2.48685 NPV(B)=-100000+(20000/1.1^1)+(25000/1.1^2)+(40000/1.1^3) -31104.43 Investment B is comparatively more profitable ,as it has lesser negative NPV

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