Question
The following table shows the expenditures for a project. It is presently the beginning of year...
The following table shows the expenditures for a project. It is presently the beginning of year 1, so the first payment of $23,958 is due now.
| begin of year 1 | $23,958 | purchase materials |
| begin of year 2 | $23,958 | purchase materials |
| begin of year 2 | $15,972 | pay subcontractors |
| begin of year 3 | $29,282 | pay subcontractors |
Revenue of $131,769 is received at the end of year 3.
Rounded to the nearest dollar, what is the net present value of the project if the opportunity cost of capital is 10%?
Homework Answers
Answer #1
For Calculating Net Present Value (NPV) of the Project:
Net Present Value = Present Value of Cash Inflows - Present value of Cash Outflows
NPV= PVCI -PVCO
[refer working Note]
NPV= $99000 - $84458
NPV =$14542
Working Notes:
1.Calculation of Present Value of Cash Inflows (PVCI)
[where,
r = Opportunity Cost Of Capital or Discounting rate
t = Year in which the amount is received]
therefore,
PVCI = $99,000
2.Calculation of Present Value of Cash Outflows (PVCO)
[where,
CF0= Cash outflow at the beginning of Year 1
CF1= Cash outflow at the beginning of Year 2
CF2= Cash outflow at the beginning of Year 3
R = Opportunity Cost Of Capital or Discounting rate]
PVCO = 23958 + 36300 + 24200
PVCO = $ 84458
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