Question

Aerospace Dynamics will invest $135,000 in a project that will produce the following cash flows. The cost of capital is 11 percent. (Note that the fourth year’s cash flow is negative.) Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 46,000 2 54,000 3 68,000 4 (53,000 ) 5 120,000 a. What is the net present value of the project?

Answer 1

the NPV of the project ,

the formula for NPV is ,

(initial investment ) + PV of cash flows,

($1,35,000 ) + 46,000/1.11 + 54,000/(1.11)^2 + 68,000/(1.11)^3 + (53,000)/(1.11)^4 + 1,20,000/(1.11)^5

=$ 36291.48

using the financial calculator the strokes will be :

CF0= $135000

CF1=$46,000

CF2= $54,000

CF3= $68,000

CF4=($53,000)

CF5= $1,20,000

THEREOFRE, THE NPV OF THE PROJECT IS $36,291.48

the NPV of the project is positive, the project is adding value to Aerospace Dynamics