A project has the following expected NCFs: Year 1: $80,000, Year 2: $70,000, Year 3: $60,000, Year 4: $50,000. If the NINV is $150,000 and the WACC is 6%, what is the NPV of the project? a. $82,659 b. $105,631 c. $93,547 d. $77,753
The correct answer is d. $77,753
Net Present Value = Present Value of cash inflows - Initial Investment
Note - NINV or Net Investment in a project is the initial investment made in the project. This usually occurs at Year 0 or at the beginning of the project.
Note - How did we calculate the discounting factors @6%.
Year 1 = 1/1.06
= 0.9434
Year 2 = 0.9434 /1.06
= 0.8900
Year 3 = 0.8900 /1.06
= 0.8396
Year 4 = 0.8396 /1.06
= 0.7921
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