Question

# A project has the following cash flow. Year Costs Benefits 0 \$10,000 0 1 \$1,000 \$5,000...

A project has the following cash flow.

 Year Costs Benefits 0 \$10,000 0 1 \$1,000 \$5,000 2 \$1,000 \$5,000 3 \$2,000 \$6,000 4 \$2,0000 \$3,000

Assuming a discount rate of 10%, estimate the following:

a)Net Present Value (NPV)

b)Discounted Benefit-Cost Ratio

c)Net discounted Benefit-Cost Ratio

 Year Cost Benefit Cash Flows = Benefit - Cost 0 10000 0 -10000 1 1000 5000 4000 2 1000 5000 4000 3 2000 6000 4000 4 20000 3000 -17000

Discount rate = 10%

a)

= \$ 4000 / (1.1)1 + \$ 4000 / (1.1)2 + \$ 4000 / (1.1)3 - \$ 17000 / (1.1)4 - \$ 10000

= - \$ 11663

b) Discounted Benefit Cost Value = \$ 4000 / (1.1)1 + \$ 4000 / (1.1)2 + \$ 4000 / (1.1)3 - \$ 17000 / (1.1)4

= - \$ 1663

= - \$ 1663 / \$ 10000

= - 0.16

c)

= - \$ 11663 / \$ 10000

= - 1.16

d) No, the project is not feasible as the NPV is less than 0 and will not add value to shareholders wealth

#### Earn Coins

Coins can be redeemed for fabulous gifts.