Question

Living Colour Co. has a project available with the following cash flows:

Year Cash Flow 0− $34,590

Year 1- 8,060

Year 2- 9,690

Year 3- 13,770

Year 4- 15,730

Year 5- 10,520

If the required return for the project is 8.2 percent, what is the project's NPV?

A.) $10,577.24

B.) $11,458.68

C.) $12,088.28

D.) $3,483.43

E.) $23,180.00

Answer #1

**SOLUTION:**

**The values of Living Colour
Co. provided in the question are as follows:**

Year Cash Flow 0− $34,590

Year 1- 8,060

Year 2- 9,690

Year 3- 13,770

Year 4- 15,730

Year 5- 10,520

Required return for the project = 8.2 percent or 0.082

Project’s (NPV) Net Present Value =?

CALCULATION OF NET PRESENT
VALUE OF PROJECT OF LIVING COLOUR CO WHEN DISCOUNT RATE IS 8.2
% |
|||

Year |
Inflow
(a) |
Discounting Factor (b ) =
(1/1+r)^n |
P.V. (c ) =
(axb) |

1 | $8,060 | 0.9242 | $7,449.05 |

2 | $9,690 | 0.8542 | $8,277.20 |

3 | $13,770 | 0.7894 | $10,870.04 |

4 | $15,730 | 0.7296 | $11,476.61 |

5 | $10,520 | 0.6743 | $7,093.64 |

PRESENT VALUE OF
INFLOW |
$45,166.53 | ||

NET PRESENT VALUE = PRESENT
VALUE OF CASH INFLOW- PRESENT VALUE OF CASH
OUTFLOW |
|||

NET PRESENT VALUE = $45,166.53 - $34,590 | |||

NET PRESENT VALUE
=$10,576.53 |
|||

OPTION 'A' WILL BE
CORRECT |

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Year
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0
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4
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please explain
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0
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Year Cash Flow
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