Question

2) A project costs $173 million to set up, and returns $66 million dollars in each...

2) A project costs $173 million to set up, and returns $66 million dollars in each of the first three years of operation. What is the net present value of the project with a discount rate of 8%?Please write your answers in dollars. Write $15m as "$15000000.00". If the answer is negative, blackboard can only read it if you type as "$-15000000.00". Please do not enter your answers as "-$15000000.00".

2b). A project costs $152 million to set up, and returns $73 million in year 1, $29 million in year 2, and $35 million in year 3. What is the net present value of the project with a discount rate of 5%? Please write your answers in dollars. Write $15m as "$15000000.00". If the answer is negative, blackboard can only read it if you type as "$-15000000.00". Please do not enter your answers as "-$15000000.00".

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Answer #1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=66,000,000/1.08+66,000,000/1.08^2+66,000,000/1.08^3

=170088401.16

NPV=Present value of inflows-Present value of outflows

=170088401.16-173,000,000

=$-2911598.84(Approx)(Negative)

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)]

=73,000,000/1.05+29,000,000/1.05^2+35,000,000/1.05^3

=126061980.35

NPV=Present value of inflows-Present value of outflows

=126061980.35-152,000,000

=$-25938019.65(Approx)(Negative)

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