Question

Kaboom Explosives Ltd is considering a major investment in a new mining project. According to initial estimates, the investment outlay would be $10,000,000 and the project would generate incremental pre-tax cash flow of $2,000,000 per year for fifteen years. The appropriate required rate of return is 16% p.a. and the project should be evaluated on a pre-tax basis.

28. What is the net present value of this project (round to nearest $1,000)?

A. $10,000,000
B. $1,151,000
C. $10,664,000 D. $20,000,000

Answer 1

This need to be found by using NPV function in EXCEL

=NPV(rate,Year1 to Year15 cashflows)-Year0 cashflow

=NPV(16%,Year1 to Year15 cashflows)-10000000

NPV=$1,150,912

If you round it to nearest $1000, the amount will be $1,151,000

Option B is correct