Question

You are considering a project that has an initial investment of $8,300 with an initial time period of 3 years. The cash flows would be provided semiannually, already adjusted for taxes, as shown in the table below. At the end of the project, you require a 12% annual return, which is 6% semiannually. (Your answer should be to two decimal places.)

Year |
||

1 | Jan - June | $1,200 |

1 | Jul - Dec | $1,500 |

2 | Jan - June | $1,100 |

2 | Jul - Dec | $1,000 |

3 | Jan - June | $800 |

3 | Jul - Dec | $1,300 |

Year |
Months |
Cash Flows |

3 | Jul - Dec | $1,200 |

Answer #1

The NPV of the project can be calculated as the sum of the present value of all cash flows

NPV = -8300 + 1200/1.06+1500/1.06^2+1100/1.06^3+ 1000/1.06^4+800/1.06^5+1300/1.06^6+1200/1.06^6

=-8300+1132.08+1334.99+923.58+792.09+597.81+1762.40

=-8300+6542.95

= - $ 1757.05

As the NPV is negative one should not take the project.

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