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A project has the following expected NCFs: Year 1: $80,000, Year 2: $70,000, Year 3: $60,000,...

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

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Answer #1

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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