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NPV   Calculate the net present value ​(NPV​) for a 15​-year project with an initial investment of...

NPV   Calculate the net present value ​(NPV​) for a 15​-year project with an initial investment of ​$1,000,000 and a cash inflow of ​$150,000

per year. Assume that the firm has an opportunity cost of 9​%.

Comment on the acceptability of the project.

The​ project's net present value is ​$____. ​(Round to the nearest​ cent.)

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Answer #1

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

=150,000/1.09+150,000/1.09^2+150,000/1.09^3+150,000/1.09^4+150,000/1.09^5+150,000/1.09^6+150,000/1.09^7+150,000/1.09^8+150,000/1.09^9+150,000/1.09^10+150,000/1.09^11+150,000/1.09^12+150,000/1.09^13+150,000/1.09^14+150,000/1.09^15

=1209103.27

NPV=Present value of inflows-Present value of outflows  

=1209103.27-1,000,000

=$209103.27(Approx)

Hence since NPV is positive;project must be accepted

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