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A firm has undertaken a feasibility study to evaluate a project that has the following estimated...

A firm has undertaken a feasibility study to evaluate a project that has the following estimated cashflows:
Increased sales to business of $140,000 for the next 5 years (starting in one year's time)Increased costs of $20,000 for the next two years (starting in one year's time)The initial capital expenditure required is $100,000.The study cost $10,000 to conduct.
-Amount borrowed to fund project is $200,000 with interest of 8% pa paid yearly.
If the firm is facing a discount rate of 10%, what is the NPV of this project?
a. $395,999
b. $516,155
c. $455,420
d. $506155
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Answer #1
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Outflows
Capital Expenditure -100000
Study Cost -10000
Net Cash Outflows -110000 0 0 0 0 0
Cash Inflows
Incremental Cash Flows 140000 140000 140000 140000 140000
Less: Incremental Costs 20000 20000 0 0 0
120000 120000 140000 140000 140000
Less: Interest 16000 16000 16000 16000 16000
Net Cash Inflows 104000 104000 124000 124000 124000
Net Cash Flows -110000 104000 104000 124000 124000 124000
Discount Rate 10%
PVF 1 0.909090909 0.826446281 0.751314801 0.683013455 0.620921323
Present Values -110000 94545.45455 85950.41322 93163.03531 84693.66847 76994.24406
NPV 325346.8156
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