Question

Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data....

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

Homework Answers

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.

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