Question

Calculate the net present value ​(NPV​) for a 25​-year project with an initial investment of ​$10,000...

Calculate the net present value ​(NPV​) for a 25​-year project with an initial investment of ​$10,000 and a cash inflow of ​$2,000 per year. Assume that the firm has an opportunity cost of 17​%. 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

Net Present Value (NPV) of the Project

Net Present Value (NPV) = Present Value of annual cash inflows – Initial investment cost

= [$2,000 x PVIFA 17.00%, 25 Years] - $10,000

= [$2,000 x 5.766234] - $10,000

= $11,532.47 - $10,000

= $1,532.47

The Net Present Value (NPV) is $1,532.47

NOTE

-The formula for calculating the Present Value Annuity Inflow Factor (PVIFA) is [{1 - (1 / (1 + r)n} / r], where “r” is the Discount Rate/Cost of capital and “n” is the number of years.

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