Question

A project will produce cash inflows of $4,183 every six months for 3 years with a...

A project will produce cash inflows of $4,183 every six months for 3 years with a final cash inflow of $9,749 six months after (three and a half years from now). The project's initial cost is $28,597. What is the net present value of this project if the annual required rate of return is 8.8 percent?

Homework Answers

Answer #1

Initial investment or present value of cash Outflow...28597

Semiannual inflows =4183

Number of periods (n)= 3*2= 6

Discount rate annual = 8.8%

Semiannual rate (I)= 8.8%/2= 4 4%

Present value of annual cash flows = Annuity*(1-(1/(1+I)^n))/I

=4183*(1-(1/(1+4.4%)^6))/4.4%

=21645.16987

Final cash flow at 7th Semiannual period = 9749

Number of period (n)= 7

Present value of single future value = future value/(1+I)^n

=9749/(1+4.4%)^7

7212.014309

NPV = present value of all cash inflows - present value of cash Outflow

=21645.16987+7212.014309 -28597

=260.184179

NPV is positive 260.18. so project should be accepted

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