Question

Maud'Dib Intergalactic has a new project available on Arrakis. The cost of the project is $40,000 and it will provide cash flows of $23,000, $29,300, and $29,800 over each of the next three years, respectively. Any cash earned in Arrakis is "blocked" and must be reinvested in the country for one year at an interest of 2.7 percent. The project has a required return of 9.3 percent. What is the project's NPV?

Multiple Choice

$24,261.39

$28,391.14

$37,685.88

$42,678.35

$46,558.20

Answer 1

$24,261.39

Here, we chalk out the cash-flows and then each positive cash-flow is invested for 1 year at 2.7%.

Actual cash-flows are the positive cash-flows invested for 1 year

We calculate the NPV using NPV function in excel

Year	Cash-flow	Actual cash-flow after investment
0	-40000	-40000
1	23000	0
2	29300	23621
3	29800	30091.1
4		30604.6
	NPV	$24,261.39

Hence, the NPV = $24261.39