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Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to...

Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company’s project, assuming the company’s cost of capital is 13.01 percent. The initial outlay for the project is $363,859. The project will produce the following after-tax cash inflows of Year 1: 160,901 Year 2: 96,955 Year 3: 170,850 Year 4: 120,022 Round the answer to two decimal places. Show your work.

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Answer #1

Cost of capital, r = 13.01%

Present value of Year 1 cash inflow = 160,901/(1+r) = 160,901/1.1301 = $142,377.67

Present value of Year 2 cash inflow = 96,955/(1+r)^2 = 96,955/(1.1301)^2 = $75,916.55

Present value of Year 3 cash inflow = 170,850/(1+r)^3 = 170,850(1.1301)^3 = $118,376.19

Present value of Year 4 cash inflow = 120,022/(1+r)^4 - 120,022/(1.1301)^4 = $73,585.69

Net Present Value (NPV) = Initial outlay + Sum of present value of cash inflows

Therefore NPV = -363,859 + 142,377.67 + 75,916.55 + 118,376.19 + 73,585.69 = $46,397.09

NPV of Tall Trees Inc's projects = $46,397.09

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