Question

Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.

	WACC = 10%
	Year:	0	1	2	3
	Cash flows:	-$1,000	$450	$440	$430

Answer 1

Net Present Value (NPV) of the Project

Year	Annual Cash Flow	Present Value factor at 10%	Present Value of Cash Flow
1	450	0.90909	409.09
2	440	0.82645	363.64
3	430	0.75131	323.07
TOTAL			1,095.79

Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment

= $1,095.79 - $1,000

= $95.79

“The Net Present Value (NPV) of the Project = $95.79”

NOTE

The Formula for calculating the Present Value Factor is [1/(1 + r)ⁿ], Where “r” is the Discount/Interest Rate and “n” is the number of years.