Question

GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates that the initial cost of the project will be $12.1 million, and the plant will produce cash inflows of $6.9 million for the next 5 years, after which time the project will terminate. In the 6th year however, the firm will need to clean up the site, which it estimates will cost it $3 million. The discount rate the firm wants to use for the project is 14.9 percent. What is the NPV of this project? (Enter answer in millions.)

Answer 1

Initial investment :12.1 million

present value of net incash flow :[PVA 14.9%,5* Cash inflow ]+ [PVF 14.9%,6*Cash outlfow]

           =[3.36011*6.9] +[.43459*-3]

            = 23.1848- 1.3038

            = 21.881 million

NPV = Present value of net cash inflow - inital cash outflow

      = 21.881-12.1

       = 9.781 milion