Question

A firm is considering an investment opportunity today. The initial cash flow (year 0) will be...

A firm is considering an investment opportunity today. The initial cash flow (year 0) will be an investment of $50 million. The project is expected to generate a project cash flow of $6 million for year 1, and the firm expects project cash flows to increase by 4% per year over the life of the project. The project will run for 20 years, and the firm has a cost of capital of 12%. What is the NPV of this proposed project?

Question 22 options:

-$1.45 million

$5.41 million

$1.49 million

$3.88 million

$7.96 million
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Homework Answers

Answer #1

Present Value of Annual Cash Flow with Growth =

=

= 57,964,001.3947

NPV = Present Value of Cash Inflow - Initial Outlay

= 57,964,001.3947 - 50,000,000

= 7,964,001.39 OR 7.96 Million

Option 5 is correct.

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