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The Aubergine Corporation is considering investing in a project that requires an initial outlay of $400,000...

The Aubergine Corporation is considering investing in a project that requires an initial outlay of $400,000 and has a profitability index of 1.5. It is expected to generate equal annual cash flows over the next 12 years. The required return for this project is 20%. The NPV of this project is:

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Answer #1
Net present value (NPV) = sum of present values of future cash flows - initial investment.
Initial investment 400000
Profitability Index (PI) = sum of present values of future cash flows/initial investment
Profitability Index (PI) 1.5
1.5 sum of present values of future cash flows/400000
sum of present values of future cash flows 400000*1.5
sum of present values of future cash flows 600000
NPV (600000 - 400000)
NPV 200000
The NPV of this project is $200000.
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