Question

Corp. is considering a project that has the following cash flow and weighted average cost of capital (WACC) data. What is the project's NPV (net present value)? Assume WACC (i.e. required rate of return) of 12.5%.

Year Cash Flows:

0=$-1,050

1 $450

2  $460

3 $470

Group of answer choices

$43.55

$56.99

$101.53

$112.97

Answer 1

Following information are provided :

Cash outflow in year 0 = $1,050

Cash inflow in year 1 = $450

Cash inflow in year 2 = $460

Cash inflow in year 3 = $470

Discount rate = 12.5%

Net Present Value = Present Value of all cash inflows discounted at 12.5% - Initial cash outflow in year 0

= (450*(1/(1+12.5%)^1))+(460*(1/(1+12.5%)^2))+(470*(1/(1+12.5%)^3))-1050

=(450*0.8889)+(460*0.7901)+(470*0.7023)-1050

=400+363.457+330.096-1050 = $43.55

Thus, NPV = $43.55 (first option)