Practice Problems: Present Value

1. Company A plans to invest in a 5-year bond that requires an outlay of Php100,000 and will earn
Php500,000 after 5 years and compounded semi-annually. The annual prevailing interest rate
of this kind of bond is 12%. What is the net present value of the investment? (Round your factor
in 3 decimal places)
PVIFr.t = (1+r)-t =[1/(1+r)]t
=(1+ 0.06)-10 or =[1/1.06]10
=0.558 =0.558

PV = FVt (PVIF)
= Php 500,000 (0.558)
=Php 279,000

NPV = PV of Inflows – PV of Outflows

= Php 279,000 – Php 100,000
= Php 179,000

2. Company B plans to invest in a 5-year bond that requires an outlay of Php100,000 and will earn
Php200,000 over 5 years, compounded annually. The annual prevailing interest rate of this kind
of bond is 10%. What is the net present value of the investment? (Round your factor in 3
decimal places)

PVIFr.t = (1-(1+r)-t)/r =([1/(1+r)]t)/r

=(1-(1+ 0.10)-5)/.1 or =([1/1.10]5)/r
=3.791 =3.791

PV = FVt (PVIF)
= Php40,000 (3.791)
= Php151,640

NPV = PV of Inflows – PV of Outflows

= Php 151,640 – Php 100,000
= Php 51,640

3. On January 1, 20x0, Company C plans to invest in a 10-year investment that requires an outlay
of Php150,000 and will earn Php30,000 for 10years starting January 1, 20x0, compounded
annually. The annual prevailing interest rate of this kind of bond is 10%. What is the net present
value of the investment? (Round your factor in 3 decimal places)
PVIFr.t = ((1-(1+r)-(t-1))/r)+1 =(([1/(1+r)]t)/r)(1+r)
-(10-1)
=(((1+ 0.10) )/.1)+1 or =(([1/1.10]10)/r)(1+.10)
=6.759 =6.759
 PV = FVt (PVIF)
= Php 30,000 (6.759)
=Php 202,770

NPV = PV of Inflows – PV of Outflows

= Php 202,770 – 150,000
= Php 52,770

4. On January 1, 20x0, Company D plans to invest in a 10-year investment that requires an outlay
of Php20,000 annually for 5 years starting December 31, 20x0 and will earn Php200,000 after
10years upon start of payment, compounded annually. The annual prevailing interest rate of
this kind of bond is 8%. What is the net present value of the investment? (Round your factor in
3 decimal places)
PVIFr.t = (1+r)^-t
=(1+.08)^-10
=0.463

PV = FVt (PVIF)
= Php200,000 (0.463)
= Php92,600

NPV = PV of Inflows – PV of Outflows

= Php 92,600 – Php 20,000((1-(1+ 0.08) -5)/.08)
= Php 92,600 – Php 20,000 (3.993)
= Php 92,600 – Php 79,860
= Php 12,740

5. On January 1, 20x0, Company E plans to invest in a 10-year investment that requires an outlay of
Php200,000 on January 1, 20x0 and will earn Php150,000 on the 5th year and another
Php150,000 upon maturity, compounded annually. The annual prevailing interest rate of this
kind of bond is 11%. What is the net present value of the investment? (Round y our factor in 3
decimal places)

PVIFr.t = (1+r)-t =(1+r)-t

=(1+ 0.11)-10 and =(1+ 0.11)-5
=0.352 =0.593

PV = FV10 (PVIF) + FV5 (PVIF)

= Php 150,000 (0.352) + Php150,000(0.593)
= Php 52,800 + Php 88,950
= Php 141,750
 NPV = PV of Inflows – PV of Outflows
= Php 141,750 – Php200,000
= (Php 58,250)

6. On January 1, 20x0, Company F plans to invest in a 10-year investment that requires an outlay
of Php200,000 on December 31, 20x0 and will earn Php150,000 on the 5th year and another
Php150,000 upon maturity, compounded annually. The annual prevailing interest rate of this
kind of bond is 11%. What is the net present value of the investment? (Round your factor in 3
decimal places)
PVIFr.t = (1+r)-t =(1+r)-t
=(1+ 0.11)-10 and =(1+ 0.11)-5
=0.352 =0.593

PV = FV10 (PVIF) + FV5 (PVIF)

= Php 150,000 (0.352) + Php150,000(0.593)
= Php 52,800 + Php 88,950
= Php 141,750

NPV = PV of Inflows – PV of Outflows

= Php 141,750 – Php200,000 ((1+r) -t)
= Php 141,750 – Php 200,000 (0.901)
= Php 141,750 – Php 180,200
= (Php 38,450)

7. On January 1, 20x0, Company G plans to invest in a 10-year investment that requires an outlay
of Php250,000 over 5 years starting December 31, 20x0 and will earn Php180,000 on the 5th
year and another Php180,000 upon maturity, compounded annually. The annual prevailing
interest rate of this kind of bond is 12%. What is the net present value of the investment?
(Round your factor in 3 decimal places)
PVIFr.t = (1+r)-t =(1+r)-t
=(1+ 0.12)-10 and =(1+ 0.12)-5
=0.322 =0.567

PV = FV10 (PVIF) + FV5 (PVIF)

= Php 180,000 (0.322) + Php180,000(0.567)
= Php 57,960 + Php 102,060
= Php 160,020

NPV = PV of Inflows – PV of Outflows

= Php 160,020 – Php50,000 ((1-(1+r) -t)/r)
= Php 160,020 – Php 50,000 (3.605)
= Php 160,020 – Php 180,250
 = (Php 20,230)

8. On January 1, 20x0, Company H plans to invest in a 10-year investment that requires an outlay
of Php150,000 over 5 years starting December 31, 20x1 and will earn Php250,000 upon
maturity, compounded annually. The annual prevailing interest rate of this kind of bond is 8%.
What is the net present value of the investment? (Round your factor in 3 decimal places)
PVIFr.t = (1+r)-t
=(1+ 0.08)-10
=0.463

PV = FVt (PVIF)
= Php250,000 (0.463)
= Php 115,750

NPV = PV of Inflows – PV of Outflows

= Php 115,750 – Php 30,000((1-(1+ 0.08) -6)/.08) – (1+0.08) -1)
= Php 115,750 – Php 30,000 (3.697)
= Php 115,750 – Php 110,910
= Php4,840

9. On January 1, 20x0, Company I plans to invest in a 10-year investment that requires an outlay of
Php100,000 over 5 years starting January 1, 20x0. The investment will earn Php300,000 over 10
years, compounded semi-annually. The annual prevailing interest rate of this kind of bond is
8%. What is the net present value of the investment? (Round your factor in 3 decimal places)
PVIFr.t = ((1-(1+ 0.04)-(20))/.04)
=13.590

PV = FVt (PVIF)
= Php15,000(13.59)
= Php 203,850

NPV = PV of Inflows – PV of Outflows

= Php 203,850 – Php 10,000(((1-(1+ 0.04)-(10-1))/.04)+1)
= Php 203,850 – Php 10,000 (8.435)
= Php 203,850 – Php 84,350
= Php 119,500
10. On January 1, 20x0, Company J plans to invest in a 10-year investment that requires an outlay of
Php100,000 over 5 years starting December 31, 20x0. The investment will earn the following
every year: First 3 years- Php20,000, Next 3 Years- Php35,000, Next 3 years- Php40,000
respectively and Php15,000 for the last year, compounded annually. The annual prevailing
interest rate of this kind of bond is 8%. What is the net present value of the investment?
(Round your factor in 3 decimal places)

PVIFr.t = (1+r)-t =(1-(1+r)-t)/r =(1-(1+r)-t)/r =(1-(1+r)-t)/r

=(1+ 0.08)-10 =(1-(1+0.08)-3)/.08 =(1-(1+0.08)-6)/.08 =(1-(1+0.08)-9)/.08
=0.463 =2.577 =4.623 Less (PVF3) = 6.247
=4.623 – 2.577 = 6.247 – 4.623
=2.046 =1.624

PV = FV3 (PVIF3)+ FV6 (PVIF6)+ FV9 (PVIF9)+ FV10 (PVIF10)

= Php20,000(2.577)+Php35,000(2.046)+Php40,000(1.624)
+Php15,000(0.463)
= Php 195,055

NPV = PV of Inflows – PV of Outflows

= Php 195,015– Php 20,000((1-(1+ 0.08) -5)/.08)
= Php 195,015– Php 20,000 (3.993)
= Php 195,015– Php 79,860
= Php 115,195