Question

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?

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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"Our company is evaluating a project with the projected future
annual cash flows shown as follows and an appropriate cost of
capital of 10.0% : Period 0: $-2,500.; Period 1: $-3,000.; Period
2: $50.; Period 3: $3,500.; Period 4: $2,200.; Period 5: $200.;
Compute the NPV statistic for the project and whether the company
should accept or reject this project."
($703) / Accept
($930) / Reject
($930) / Accept
($703) / Reject
"($1,654) / Accept"
"($1,654) / Reject"
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