Question

Suppose Pheasant Pharmaceuticals is evaluating a proposed capital budgeting capital project that will require an initial...

Suppose Pheasant Pharmaceuticals is evaluating a proposed capital budgeting capital project that will require an initial investment of $3,225,000. The project is expected to generate the following net cash flows:

Year Cash Flow
1 $375,000
2 $425,000
3 $500,000
4 $400,000


Pheasant's weighted average cost of capital (WACC) is 8%. Based on the cash flows, what is this project's NPV?

A. -$2,186,977

B. -$1,422,481

C. -$1,822,481

D. -$5,047,481

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Answer #1

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

  • Press the CF button.
  • CF0= -$3,225,000. 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 the weighted average cost of capital of 8%.
  • Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at % weighted average cost of capital is -$1,822,480.72

Hence, the answer is option c.

In case of any query, kindly comment on the solution.

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