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A project costs $50,000 and returns $18,000 a year for 4 years at 10%. Do we accept it?

NPV = $7,056.95 — accept the project.

Here's how to get there, step by step.

1
Bring each year's $18,000 back to today's value.
Year 1: 18,000 ÷ 1.10 = 16,363.64
2
Add the four discounted amounts.
Total today: 57,056.95
3
Subtract what the project costs now.
57,056.95 − 50,000 = 7,056.95

The calculation

Year 1, in today's dollars16,363.64
Year 2, in today's dollars14,876.03
Year 3, in today's dollars13,523.67
Year 4, in today's dollars12,293.61
Total today57,056.95
Cost of the project−50,000.00
NPV7,056.95

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