Question

New flyer industries has decided to expand its productions of hybrid transit buses. The firm expects incremental cash flows of $40 million per year for the near 10 years. The upfront cost of the expansion is $150 million and there’s are additional insurance costs for external financing of $15 million. If the new flyers WACC is 7.5% what is the NPV of this project

Answer 1

Year-0 cost or Initial cost = Expansion cost + Insurance for external financing = 150 + 15 = $165

	Discount rate = R =	7.50%	Present Values (PV)
Year	Cash flows	Discount factor or PV factors = Df = 1/(1+R)^Year	PV of cash flows = Cash flows x Df
0	-$165.00	1.000000	-$165.00
1	$40.00	0.930233	$37.21
2	$40.00	0.865333	$34.61
3	$40.00	0.804961	$32.20
4	$40.00	0.748801	$29.95
5	$40.00	0.696559	$27.86
6	$40.00	0.647962	$25.92
7	$40.00	0.602755	$24.11
8	$40.00	0.560702	$22.43
9	$40.00	0.521583	$20.86
10	$40.00	0.485194	$19.41
		Total of PV = NPV in million =	$109.56

NPV = $109.56 million

OR

NPV in USD = $109,563,238.24