Question

 Using a cost of capital of 11​%, calculate the net present value for the project shown in the following table and indicate whether it is​ acceptable,

Initial investment ​(CF 0CF0​)	negative $−$1153
Year ​(t​)	Cash inflows ​(CF Subscript tCFt​) in thousands
1	​$83
2	​$135
3	​$195
4	​$260
5	​$315
6	​$385
7	​$280
8	​$95
9	​$40
10	​$29

The net present value​ (NPV) of the project is

Answer 1

SOLUTION:-

Calculation of the NPV of the project is as follows:-

  

Years	Inflow / Outflow	PV of $1 Factor for 11%	Discounted Cash outflows	Discounted Cash inflows
0	($1153)	1	($1153)
1	$83	0.9009		$74.77
2	$135	0.8116		$109.56
3	$195	0.7312		$142.58
4	$260	0.6587		$171.26
5	$315	0.5935		$186.95
6	$385	0.5346		$205.82
7	$280	0.4817		$134.88
8	$95	0.4339		$41.22
9	$40	0.3909		$15.64
10	$29	0.3522		$10.21
Total			($1153)	$1092.89

NPV = Discounted future expected net cash inflows - Initial investment

Here,

Discounted future expected net cash inflows = $1092.89

Initial investment = $1153

By substituting the values we get,

NPV = $1092.89 - $1153

  NPV = - $60.11 ( negative NPV)