Question

A project has an initial cost of $45,300, expected net cash inflows of $12,000 per year for 12 years, and a cost of capital of 14%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

Answer 1

Initial cost = $45,300

Cash inflows = $12,0000 for 12 years (need to convert into present value)

Discount rate = 14%

Present value of cash flow = cash flow * Present value factor at discounting rate

Refer Present value factor table for Present value factor at discounting rate.

Net Present Value = Present value of cash inflows - Present value of cash outflows

Year	Cash flow	PV factor @14%	PV of cash flow
1	12000	0.877	10524
2	12000	0.769	9228
3	12000	0.675	8100
4	12000	0.592	7104
5	12000	0.519	6228
6	12000	0.456	5472
7	12000	0.4	4800
8	12000	0.351	4212
9	12000	0.308	3696
10	12000	0.27	3240
11	12000	0.237	2844
12	12000	0.208	2496
		Total	67944

Present value of cash inflows = $67,944

Net Present value = 67944 - 45300 = 22644

Project's NPV is $22,644