Thread: 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

Originally Posted by MrGreedy

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.....