Question

You are considering starting an air delivery business. Your will need to spend $107,000 today to purchase the airplane and other necessary equipment. You expect to generate cash flows (after expenses) of $21,000 per year for the first five years and then $14,000 per year for the next 5 years. At the end of 10 years, you think you can sell the business for about $94,000. If your required return is 11.7%, what is the NPV of this project? Round your answer to two decimal places.

Answer 1

Project
Discount rate	11.700%
Year	0	1	2	3	4	5	6	7	8	9	10
Cash flow stream	-107000	21000	21000	21000	21000	21000	14000	14000	14000	14000	108000
Discounting factor	1.000	1.117	1.248	1.394	1.557	1.739	1.942	2.170	2.423	2.707	3.024
Discounted cash flows project	-107000.000	18800.358	16831.117	15068.144	13489.834	12076.843	7207.904	6452.913	5777.004	5171.892	35718.402
NPV = Sum of discounted cash flows
NPV Project =	29594.41
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor