Question

SmallCo, which has a cost of capital of 12%, is considering the following project: Year 0...

SmallCo, which has a cost of capital of 12%, is considering the following project:

Year 0 1 2 3
Cash flows of project $(2,000) $1,000 $800 $700

What is the NPV of the project?

Select one:

a. $29

b. $700

c. $500

d. $2,029

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Homework Answers

Answer #1

Net present value = $29

Working notes for the above answer is as under

NPV calculation

i

12%

Year

Cash Flow (A)

x

PV Factor   (B)

I= 12%

=

Prasent Value (C=A*B)

1

1,000

x

0.893

893

2

800

x

0.797

637.6

3

700

x

0.712

498.4

Present Value of Cash inflow

2029.00

Present Value of Cash Outflow

-2000.00

Net present value (2029-2000)

29
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