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Math Help - Net Present Value help needed

  1. #1
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    Net Present Value help needed

    Hi,

    I'm working on a question that compares health care plans for employees of a business for 5 years.

    There are 4 different health care plans on offer and each have differing costs.

    The question asks to compare using their net present value.

    If the discount rate is 6% and the first health care plan costs 182,000 payable after the first year and then each subsequent year, is the NPV:

    Year 1: 182000 * (1+0.06)^-1
    Year 2: 182000 * (1+0.06)^-2
    Year 3: 182000 * (1+0.06)^-3
    Year 4: 182000 * (1+0.06)^-4
    Year 5: 182000 * (1+0.06)^-5

    Total = NPV ?

    Please help. Confused. Thanks
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  2. #2
    MHF Contributor
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    Ottawa, Canada
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    Quote Originally Posted by MrGreedy View Post
    Hi,

    I'm working on a question that compares health care plans for employees of a business for 5 years.

    There are 4 different health care plans on offer and each have differing costs.

    The question asks to compare using their net present value.

    If the discount rate is 6% and the first health care plan costs 182,000 payable after the first year and then each subsequent year, is the NPV:

    Year 1: 182000 * (1+0.06)^-1
    Year 2: 182000 * (1+0.06)^-2
    Year 3: 182000 * (1+0.06)^-3
    Year 4: 182000 * (1+0.06)^-4
    Year 5: 182000 * (1+0.06)^-5

    Total = NPV ?

    Please help. Confused. Thanks
    NPV = 182000(1 - x) / .06 where x = 1 / 1.06^5
    That'll give you 766,650.209.....
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