Question

A proposed project requires an initial cash outlay of $388,699 for equipment and an additional cash outlay of $51,864 in year 1 to cover operating costs. During years 2 through 4, the project will generate cash inflows of $500,000 a year. What is the net present value of this project at a discount rate of 9 percent? Round your answer to the nearest whole dollar.

Answer 1

Year	Project Cash Flows (i)	DF@ 9%	DF@ 9% (ii)	PV of Project ( (i) * (ii) )
0	-388699	1	1	(3,88,699.00)
1	-51864	1/((1+9%)^1)	0.917431	(47,581.65)
2	500000	1/((1+9%)^2)	0.841680	4,20,840.00
3	500000	1/((1+9%)^3)	0.772183	3,86,091.74
4	500000	1/((1+9%)^3)	0.708425	3,54,212.61
		NPV	7,24,863.69
	NPV of Project B is 724864