Question

The company has a project with a 5-year life that requires an initial investment of $210,000, and is expected to yield annual cash flows of $59,500. What is the net present value of the project if the required rate of return is set at 8%?

Net Present Value= ($59,500*???)-210,000

What NPV does the previous calculation
yield? $*Note*: Round your answer to the nearest
whole dollar.

Answer #1

The problem is related to the calculation of Net Present Value of a project.

Present Value of Annual Cash Flows for 5 years = Annual Cash Flow $59,500 * Present Value annuity factory at 8% for 5 years

= $59,500 * 3.993

= $237,583.50

Initial Investment i.e. Cash Outflow = $210,000

Net Present Value = $237,583.50 - $210,000

**= $27,583.50 or $27,584**

What NPV does the previous calculation Yield =
**$27,584**

Present Value of an annuity table is used for above calculation:

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