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The Colby Corporation has been presented with an investment opportunity, which will yield end-of-year cash flows...

The Colby Corporation has been presented with an investment opportunity, which will yield end-of-year cash flows of $10,000 per year in Years 1 through 3, $15,000 per year in Years 4 through 8, and $20,000 in Years 9 & 10. This investment will cost the firm $50,000 today, and the firm's cost of capital is 9 percent. What is the NPV for this investment? Please show work. Thank you.

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Answer #1

Answer : Calculation of Net present value of Investment :

Net Present Value = Present value of Cash Inflow - Present value of Cash Outflow

Below is the table showing calculation of Net Present Value:

Year Cash Inflow Present Value Factor @ 9% [1/(1+0.09)^n] Present value of cash inflow
1 10000 0.917431193 9174.311927
2 10000 0.841679993 8416.799933
3 10000 0.77218348 7721.834801
4 15000 0.708425211 10626.37817
5 15000 0.649931386 9748.970794
6 15000 0.596267327 8944.009903
7 15000 0.547034245 8205.513673
8 15000 0.50186628 7527.994195
9 20000 0.46042778 9208.55559
10 20000 0.422410807 8448.216138
Total Present value of cash inflow 88022.58512
Less : Cash outflow 50000
Net Present Value 38022.5851
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