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(NPV with varying required rates of return​) Gubanich Sportswear is considering building a new factory to...

(NPV with varying required rates of return​) Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of ​$4000000 and would generate annual free cash inflows of ​$1200000 per year for 8 years. Calculate the​ project's NPV ​given: a. A required rate of return of 8 percent b. A required rate of return of 10 percent c. A required rate of return of 14 percent

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Answer #1

a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1200000 [1-(1.08)^-8]/0.08

1200000 *5.746638944

=$6,895,966.73

NPV=Present value of inflows-Present value of outflows

=$6,895,966.73-$4000000

=$2,895,966.73(Approx).

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1200000 [1-(1.1)^-8]/0.1

1200000 *5.334926198

=$6,401,911.44

NPV=Present value of inflows-Present value of outflows

=$6,401,911.44-$4000000

=$2,401,911.44(Approx).

c.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1200000 [1-(1.14)^-8]/0.14

1200000 *4.638863894

=$5,566,636.67

NPV=Present value of inflows-Present value of outflows

=$5,566,636.67-$4000000

=$1,566,636.67(Approx).

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