Question

Our company is evaluating a project with the projected future annual cash flows shown as follows...

Our company is evaluating a project with the projected future annual cash flows shown as follows and an appropriate cost of capital of 15.0%. Period 0: $9,000: Period 1: $4,500, Period 2: $450, Period 3: $5,500, Period 4: $2,500, Period 5: $600. Compute the NPV statistic for the project and whether the company should accept or reject this project?

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Answer #1

Solution:-

To Calculate NPV of the Project-

NPV = Present Value of Cash Inflows - Present Value of Cash Outflows

NPV =

NPV =

NPV = 4,500 * 0.8696 + 450 * 0.756 + 5,500 * 0.658 + 2,500 * 0.572 + 600 * 0.497 - 9,000

NPV = 3,913.04 + 340.26 + 3,616.34 + 1,429.38 + 298.31 - 9,000

NPV = $597.34

NPV of the Project is accepted when it is greater than or equal to zero. Here, NPV of the Project is positive. Hence, Accepted.

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