Question

A given project requires a $21,411 investment and is expected to generate end of period annual cash flows as follows: Year 1 Year 2 Year 3 $16,633 $8,000 $10,000 Assuming a discount (interest) rate of 10%, what is the net present value of this investment? Use the table in your book and do not round the numbers from the table. You can round your answer to the nearest dollar, but do not include a dollar sign in your answer. If your answer is negative, include a negative sign before the number (for example, -3000).

Answer #1

Ans:

Calculation of Net present value of project:

Initial Investment : $21,411

Interest rate :10%

Present value of Inflow table is given below.

Year | Net Cash inflow | Present value Factor @ 10% | Present Value of Cash Inflow |

1 | $16,633 | 0.90909 | $15,120.90 |

2 | $8,000 | 0.82645 | $ 6,611.60 |

3 | $10,000 | 0.75131 | $ 7,513.10 |

Present value of all cash inflow | $29,245.60 |

So net present value of Project = Inflow - Outflow

= $29245.59 - $21411 = $7834.60 or **$7835**

**So correct answer is 7835.**

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