An organization uses 'NPV' with a discount rate of 12%. If a project costs 100k today and returns 112k in exactly one year, what is the NPV?

$0

Explanation

 

We solve this using the Net Present Value (NPV) formula.

NPV measures the difference between the present value of benefits and the initial investment.

The NPV formula is

 

\[NPV = \frac{FV}{(1+r)^n} - \text{ Initial Investment}\]

• FV = Future Value
• r = Discount rate
• n = Number of years

Calculate the Present Value of the future return

\[PV = \frac{112000}{(1 + 0.12)^1} = \frac{112000}{1.12} = 100000\]

Calculate NPV

\[NPV = PV - \text{ Initial Investment} = 100000 - 100000 = 0\]