Question

2. Project A costs $41,425 and has a WACC of 13% its expected net cash inflows are as followed YEAR: 0 1 2 3 4 5 6 CF: 9,000 8,000 9,000 12,000 10,000 18,000 what is the project NPV

Answer 1

cost of capital, WACC, (R)= 13% = 0.13

Cash flow for year 1, C1 = $9000

Cash flow for year 2, C2 = $8000

Cash flow for year 3, C3 = $9000

Cash flow for year 4, C4 = $12000

Cash flow for year 5, C5 = $10000

Cash flow for year 6, C6 = $18000

Initial investment , I = $41,425

NPV of A = [ (C1/(1.13)¹) + (C2/(1.13)²) + (C3/(1.13)³) + (C4/(1.13)⁴) + (C5/(1.13)⁵) +(C6/(1.13)⁶)] - I

= [(9000/(1.13)) + (8000/(1.13)²) + (9000/(1.13)³) + (12000/(1.13)⁴) + (10000/(1.13)⁵) + (18000/(1.13)⁶) ] - 41425

= [ 7964.60177 + 6265.173467 + 6237.45146 + 7359.824732 + 5427.59936 + 8645.733494] - 41425

= 475.38428

NPV of project A = $475.38428 or $475.38 ( rounding off to 2 decimal places)