Question

You are evaluating a prospective project. The cost of the project is $135,000 at year 0,...

You are evaluating a prospective project. The cost of the project is $135,000 at year 0, the project will generate a cash inflow of $5,000 for the first 3 years and a cash inflow of $21,000 dollars for 7 years afterwards. The appropriate discount rate is 12.94%. Ignoring the PV of the tax shield generated by this project, the NPV of this project is (round to 2 decimals)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer :

Calculation of Net Present Value

Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow

Present Value of Cash Outflow = 135,000

Below is the table showing Calculation of Present value of cash Inflow

Year Cash Flows PVF @12.94% Present Value of cash Flows
1 5000 0.88542589 4427.129449
2 5000 0.783979006 3919.895032
3 5000 0.694155309 3470.776547
4 21000 0.614623083 12907.08473
5 21000 0.54420319 11428.26698
6 21000 0.481851594 10118.88346
7 21000 0.426643876 8959.521396
8 21000 0.377761534 7932.992205
9 21000 0.334479842 7024.076682
10 21000 0.296157112 6219.299347
Present value of Cash Flows 76,407.92584

Net Present Value = 76,407.92584 - 135,000

= (-58,592.07416)

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Middlefield Motors is evaluating a project that would cost 6,200 dollars today. The project is expected...
Middlefield Motors is evaluating a project that would cost 6,200 dollars today. The project is expected to have the following other cash flows: 2,350 dollars in 1 year, -2,480 dollars in 3 years, and 7,540 dollars in 4 years. The cost of capital of the project is 5.64 percent. What is the net present value of the project? They are also evaluating a project that would cost 4,360 dollars today. The project is expected to produce annual cash flows of...
1) What is the NPV of a project that costs $89,000 today and is expected to...
1) What is the NPV of a project that costs $89,000 today and is expected to generate annual cash inflows of $18,000 for the next 8 years. Cost of capital (discount rate) is 13%. Round to the nearest cent. 2) What is the Profitability Index of a project that costs $22,000 today and is expected to generate annual cash inflows of $5,000 for the following 7 years. Cost of capital is 9%. Round to two decimal places. 3) A project...
A project costs $5,000 at t = 0 and will generate annual cash flows of $750...
A project costs $5,000 at t = 0 and will generate annual cash flows of $750 for 10 years, starting at t = 1. The discount rate is 6%. What is the NPV? What is the IRR? (Write down the equation for the IRR and get the solution using Excel or the calculator.) A project costs $5,000 and will generate annual cash flows of $200 in the first year, $300 in the second year and $400 in the third year....
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in: a. ​Project B because it has no cash inflows...
Platinum Water Aviation has a weighted-average cost of capital of 10.36 percent and is evaluating two...
Platinum Water Aviation has a weighted-average cost of capital of 10.36 percent and is evaluating two projects: A and B. Project A involves an initial investment of 4,886 dollars and an expected cash flow of 8,404 dollars in 4 years. Project A is considered more risky than an average-risk project at Platinum Water Aviation, such that the appropriate discount rate for it is 1.01 percentage points different than the discount rate used for an average-risk project at Platinum Water Aviation....
4. You have a fourth project that will cost 1700 to invest in one year from...
4. You have a fourth project that will cost 1700 to invest in one year from now, will generate a cash inflow of 150 starting in year three and continuing forever. If the discount rate is 8%, what is the NPV and should you accept the project based on the NPV? Please show all of your work
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in: a.Project B because it has no cash inflows in...
You are evaluating a project that costs $77,000 today. The project has an inflow of $164,000...
You are evaluating a project that costs $77,000 today. The project has an inflow of $164,000 in one year and an outflow of $67,000 in two years. What are the IRRs for the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Smallest -44.88 % Largest 57.87 % What discount rate results in the maximum NPV for this...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 340,000 dollars today. The equipment would be depreciated straight-line to 20,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 34,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 212,000 dollars and relevant costs are expected to be 111,000 dollars. The tax rate is 50 percent...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 190,000 dollars today. The equipment would be depreciated straight-line to 30,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 43,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 156,000 dollars and relevant costs are expected to be 41,000 dollars. The tax rate is 50 percent...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT