Question

A company is considering a project that has the following cash flows: -1200 in year 0, 400 in year 1, 425 in year 2, 450 in year 3, and 475 in year 4. The WACC is 14%. What is the project’s NPV?

A $45.84

B $41.25

C $50.93

D $56.59

E $62.88

Answer 1

Answer E ($62.88)

NPV = CF 0 + CF 1 * (1/1.14^1) + CF 2 * (1/1.14^2) + CF 3 * (1/1.14^3) + CF 4 * (1/1.14^4)

       = ($1200) + 400 * 0.877 + 425*0.7695 = 450 * 0.6750 + 475 * 0.5921

=    $62.88

Another way

Year	CI	PVF @ 14%	PVCI
1	$400.00	0.8772	$   350.88
2	$425.00	0.7695	$   327.02
3	$450.00	0.6750	$   303.74
4	$475.00	0.5921	$   281.24
		Total	$1,262.88
		PVCO	1200
		NPV	$     62.88