Question

A firm is evaluating a four-year project that requires an investment today of $2.6 million. In...

A firm is evaluating a four-year project that requires an investment today of $2.6 million. In addition, the project will require a one-time injection of working capital of $222,000 today that will be recovered at project end. The project is estimated to provide operating cash flows of $615,000 each year for the four years. The firm’s discount rate is 8.5%.

What is the NPV of the project?

Homework Answers

Answer #2

Present Value of Cash Outflow = 2,600,000 + 222,000 = 2,822,000

Present Value of Cash Inflow =

Cash Flow in year 4 will be = 615,000 + 222,000 = 837,000

=

= 2,174,681.43

NPV = Present Value of Cash Inflow - Present Value of Cash Outflow

= 2,174,681.43 - 2,822,000

= -647,318.57

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