Question

Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?

Year Project

0 ($11,368,000)

1 $ 2,187,590

2 $ 3,787,552

3 $  3,275,650

4 $ 4,115,899

5 $ 4,556,424

Answer 1

NPV of the project is $ 5,42,521

NPV Calculation

Net Present Value (NPV) = Present Value of cash flows – Initial Investment

Present Value of cash flows

= ($ 2,187,590x0.8787) + ( $ 3,787,552x0.7722) + ($ 3,275,650x0.6785) + ($4,115,899x0.5962) + ($ 4,556,424x0.5239)

= $ 1,19,10,521

Initial Investment = $ 1,13,68,000

Net Present Value (NPV) = Present Value of cash flows – Initial Investment

                                      = $ 1,19,10,521 - $ 1,13,68,000

                                      = $ 5,42,521