What am I doing wrong? I am trying to figure NPV with an opportunity
cost of capital at 12%.

Project flows for year one is 28,500, year two is 22,500, year three
is 16,500 and year four is a -500.00.

I am using the following formula:

28,500/1.12 + 22,500/ (1.12)^2 + 16,500/ (1.12)^3 + -500/ (1.12)^ 4

My calculator is telling me syntax error. Can I not plug in a negative number?

Sorry, I am really ignorant with this stuff. Any help would be greatly
appreciated. Thanks.

Baseball2 --

My H-P (it's an old model) will take the negative numbers -- and
indeed you should show outward cashflow for year 4 with these
assumptions.

Here are the NPV factors:
Year 1: 1.1200
Year 2: 1.2544
Year 3: 1.4049
Year 4: 1.5735

So the year 4 cash flow, discounted is -500/1.5735 = -317.76

Let me know if there are any other problems in calculating this NPV.

Best regards,

Omnivorous-GA

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Request for Answer Clarification by baseball2-ga on 25 Jul 2005 17:09 PDT

I am sorry, I am still a bit cofused. Are you stating to calculate the
NPV  I should use 28,500/1.2 + 22,500/(1.254)^2 + 16500/ (1.4049)^3 +
-500/ (1.573^4?

Or do I keep the ^ (roots) out?

You don't have to answer the next question if you would like me to
submit it seperatly. But I also need to figure out the IRR, what would
be the calculation or formula to do that?

Thanks much, and I truly appreciate all your help.

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Clarification of Answer by omnivorous-ga on 25 Jul 2005 17:22 PDT

Baseball2 --

No -- your calculations as orginally presented are correct.  I've
simply done the math so that you can check your denominator against
those numbers . . .  Again, you're calculating the NPV correctly!

Note that if you're having troubles with your calculator, simply run
the numbers, then hit "CHS" or "Change Sign" on the calculator when
you know the cash flow is negative.

Now, to get the IRR, you want a discount factor that reduces the NPV
to zero.  I find that it's easiest to set up a line with the discount
factor and change the numbers.  Here's an example, where 9% interest
produces a positive NPV but 14% produces a negative NPV.  The line
"IRR test" adjusts the discount rate until we get a value closest to
zero (the closest we could get was -$129, as 11.9% produced a positive
NPV and 12.1% was a much bigger negative number):
http://www.mooneyevents.com/npvirr.xls

Best regards,

Omnivorous-GA

I get it now. Sorry for the confusion and thank you very much!