Question

The Blueberry Company is considering a project which will cost $401 initially. The project will not produce any cash flows for the first 3 years. Starting in year 4, the project will produce cash inflows of $598 a year for 4 years. This project is risky, so the firm has assigned it a discount rate of 20.3 percent. What is the net present value?

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$401. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter discount rate of 20.3%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 20.3% the discount rate is $483.15.

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