To calculate the Net Present Value (NPV) of the project, we use the formula:

$\text{NPV} = \sum \left( \frac{\text{Cash Flow}_t}{(1 + r)^t} \right) - \text{Initial Investment}$

Where:

• $\text{Cash Flow}_t$ is the cash flow in year $t$,
• $r$ is the discount rate (cost of capital), and
• $t$ is the year.

Given:

• Initial Investment = 1,00,000
• Cash Flow Year 1 = 55,000
• Cash Flow Year 2 = 80,000
• Cash Flow Year 3 = 15,000
• Cost of Capital = 10%
• Present Value Interest Factors (PVIF) @ 10%:
  • Year 1: 0.909
  • Year 2: 0.826
  • Year 3: 0.751

Step-by-Step Calculation

1. Year 1:
   $\text{PV of Year 1 Cash Flow} = 55,000 \times 0.909 = 49,995$

2. Year 2:
   $\text{PV of Year 2 Cash Flow} = 80,000 \times 0.826 = 66,080$

3. Year 3:
   $\text{PV of Year 3 Cash Flow} = 15,000 \times 0.751 = 11,265$

4. Total Present Value of Cash Flows:
   $\text{Total PV} = 49,995 + 66,080 + 11,265 = 1,27,340$

5. Net Present Value (NPV):
   $\text{NPV} = 1,27,340 - 1,00,000 = 27,340$

Conclusion:

The Net Present Value (NPV) of the project is ₹27,340.

Would you like more details or have any questions?

Here are some related questions to consider:

1. How would changes in the cost of capital affect the NPV?
2. What is the significance of a positive NPV for investment decisions?
3. How do you calculate the Internal Rate of Return (IRR) for this project?
4. What if the cash flows were uneven or had a different pattern?
5. How does NPV compare with other investment appraisal methods like Payback Period or Profitability Index?

Tip: NPV is a powerful tool because it accounts for the time value of money, ensuring that future cash flows are accurately valued in today's terms.