Question

Calculate the net present value (NPV) for a 15-year project with an initial investment of $25,000 and a cash inflow of $6,000 per year. Assume that the firm has an opportunity cost of 15%.

1. The project’s net present value is $___. (Round to the nearest cent)

2. Is the project acceptable? Yes or No

Answer 1

Initial Investment = $25,000

Cash inflow = $6,000

Opportunity cost of capital = 15%

Project's Net present value = Present value of cash inflows - Initial investment

Project's Net present value = [$6,000 * PVAF(15%, 15 years)] - $25,000

Project's Net present value = ($6,000 * 5.84737) - $25,000

Project's Net present value = $35,084.22 - $25,000

Project's Net present value = $10,084.22

Since the Project's Net present value is positive and $10,084.22, The project should be accepted

So, Yes