Question

Is this a good business project to accept? why or why not? The values for cash...

Is this a good business project to accept? why or why not? The values for cash flow are positive.

Please calculate the NPV of the following cash flow stream if the required rate is 12%. Year 0 - 230,000, year1 - 60,000, year2-60,000, year 3-60,000 year 4 - 60,000 year 5-60,000.

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Answer #1

Calculation of NPV

Year Cash Flow PVF @12%
PV
0.00 -230,000.00 =1/((1+0.12)^0) = 1.0000 -230,000.00
1.00 60,000.00 =1/((1+0.12)^1) = 0.8929 53,574.00
2.00 60,000.00 =1/((1+0.12)^2) = 0.7972 47,832.00
3.00 60,000.00 =1/((1+0.12)^3) = 0.7118 42,708.00
4.00 60,000.00 =1/((1+0.12)^4) = 0.6355 38,130.00
5.00 60,000.00 =1/((1+0.12)^5) = 0.5674 34,044.00
NPV -13,712.00

Since, the project has a negetive NPV, accepting the project will result in a loss to the company, given the required rate of return is 12%

This is not a good business project and should not be accepted.

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