Question

A project has an initial outlay of $2,038. It has a single payoff at the end of year 9 of $7,559. What is the net present value (NPV) of the project if the company’s cost of capital is 10.19 percent? Round the answer to two decimal places.

Answer 1

initial outlay = $2,038

single payoff at the end of year 9 = $7,559

cost of capital = 10.19

NPV= Present Value of inflow - present value of outflow

Calculate present value of cash flow received at year end 9 and compare it with initial outlay

Present value Factor of at year 0 = 1

Present value of Initial outlay at year 0 = $2038*1= $2038

Present value factor of inflow at year 9 = Pv (10.19%,9th year) = (1/1+10.19%) 9times =0 .41756140708 = 0.42 (roundoff)

So present value = .42*$7559 = $ 3174.78

net present value (NPV) = $3174.78 - $2038 = 1136.78