Question

You are presented a proposal for a project. The project costs $10,000,000 and will produce after-tax cash flows of $$2,000,000 at the end of year 1, $4,000,000 at the end of year 2, and $8,000,000 at the end of year 3. What is the NPV of this project if your WACC is 12.5%?

Answer 1

Year	Cash Flow (C)	PV Factor calculation	PV Factor @ 12.5 % (F)	PV (= C x F)
0	$ (10,000,000)	1/(1+12.5%)^0	1	($10,000,000.00)
1	$     2,000,000	1/(1+12.5%)^1	0.888888889	$1,777,777.78
2	$     4,000,000	1/(1+12.5%)^2	0.790123457	$3,160,493.83
3	$    8,000,000	1/(1+12.5%)^3	0.702331962	$5,618,655.69
			NPV	$556,927.30

NPV of the project is $ 556,927.30