Question

A project that provides annual cash flows of $13,738 for eight years costs $84,486 today. What is the NPV for the project if the required return is 7 percent? (Negative amount should be indicated by a minus sign. Round your answer to the nearest dollar. (e.g., 32.16)

Answer #1

NPV(Net Present Value) is the sum of the cash outflows today and present values of the cash inflows in future

Cash Outflow = - $ 84486 (As cash moves out, hence negative sign)

Cash inflows = 13738 for 8 years

Hence present value of cash inflows will be equal to

in this i will take values from 1 to 8 as project is providing these cash flows for 8 years

Basically we are discounting the future cash flows at the required return to get te present values of cash flows

PV of cash flows = $ 82033.65

Therefore NPV = -84486 + 82033.65 = - $ 2452.35

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