Question

Corner Restaurant is considering a project with an initial cost of $211,600. The project will not produce any cash flows for the first five years. Starting in Year 4, the project will produce cash inflows of $151,000 a year for three years. This project is risky, so the firm has assigned it a discount rate of 18.6 percent. What is the project's net present value?

A) -$46,028.92 B) $39,487.15 C) -$38,399.55 D) $67,653.02 E) $18,715.97

Answer 1

as per the question There is no cash flow upto 5 years then cash flow of 151000 for 6, 7, 8 years respectively

Calculation of NPV as follows:

PVF @ 18.6% = 1/1.186^n where n is years ie; 6,7,8

Year	CASHFLOW	PVF @ 18.6%	PV
0	(211,600.00)	1	(211,600.00)
6	151,000.00	0.35933	54,258.63
7	151,000.00	0.30298	45,749.27
8	151,000.00	0.25546	38,574.42
		NPV	(73,017.68)