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

$42,678.35

$46,558.20

$37,685.88

$24,261.39

$28,391.14

Answer 1

Answer:
Calculation of NPV
Formula will will use here
NPV =	Present value of Cash inflows - Initial cost
Calculation of cash inflows
Cash Inflows	Future value factor @2.70%	Cash inflow in subsequent year
23000.00	1.02700	23621.00
29300.00	1.02700	30091.10
29800.00	1.02700	30604.60
Initial cost =	40000.00
Year	Cash Inflows	Present value factor @ 9.30%	Present value of cash inflows
1	0.00	0.91491	0.000
2	23621.00	0.83707	19772.335
3	30091.10	0.76584	23045.046
4	30604.60	0.70068	21444.013
Total	64261.394
NPV
Present value of cash inflows	64261.394
Less: Initial cost		40000.000
NPV		24261.394
The net present value of the project is $24,261.39 (Answer)