Question

Project L requires an initial outlay at t = 0 of $45,000, its expected cash inflows are $10,000 per year for 9 years, and its WACC is 12%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Initial expenditure = $ 45000

WACC( required rate ) = 12 %

NPV is the excess of present value of all cash inflows over present value of cash outflows.

Present value of cash outflows = initial expenditure = $ 45000

Cash inflows are $10,000 per year for 9 year.

Present value of cash inflows = Cash inflow per year * PVAF(12%,n)

(Note : When the cashflows are in series of equal future cash flows or in annuity Present value of annuity factor table can be used. Corresponding to 12 % for 9 years PVAF value is 5.328)

= 10,000 * 5.328

= $ 53,280

NPV = Present value of cash inflows - Present value of cash outflows

= 53,280 - 45000

NPV = $ 8280