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) |

Corner Restaurant is considering a project with an initial cost
of $211,600. The project will not produce any cash flows for the
first three years. Starting in Year 4, the project will produce
cash inflows of $151,000 a year for five 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

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value?
a.
$2,335.56
b. $122,585.57

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firm. The firm has a pretax cost of debt of 5.49 percent and a cost
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Multiple Choice
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