Question

Determine the net present value for a project that costs $253,494.00 and is expected to yield...

Determine the net present value for a project that costs $253,494.00 and is expected to yield after-tax cash flows of $29,000 per year for the first ten years, $37,000 per year for the next ten years, and $50,000 per year for the following ten years. Your firm's cost of capital is 12.00%. ***WITHOUT USE OF FINANCE CALCULATOR***

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Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=29000/1.12+29000/1.12^2+...............+29000/1.12^10+37000/1.12^11+37000/1.12^12+.............+37000/1.12^20+50000/1.12^21+50000/1.12^22+..............+50000/1.12^30

=29000[1/1.12+1/1.12^2+............+1/1.12^10]+37000[1/1.12^11+1/1.12^12+.............+1/1.12^20]+50000[1/1.12^21+1/1.12^22+............+1/1.12^30]

=(29000*5.650223028)+(37000*1.819220596)+(50000*0.585740343)

=$260454.65

NPV=Present value of inflows-Present value of outflows

=$260454.65-$253494

=$6960.65(Approx).

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