Question

# Living Colour Co. has a project available with the following cash flows: Year Cash Flow 0−...

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

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