Question

GDebi Enterprises is thinking of building a chemical processing plant to produce 4-hydroxy-3-methoxybenzaldehyde. The firm estimates that the initial cost of the project will be $13.7 million, and the plant will produce cash inflows of $6.1 million for the next 5 years, after which time the project will terminate. In the 6th year however, the firm will need to clean up the site, which it estimates will cost it $4.8 million. The discount rate the firm wants to use for the project is 12.8 percent. What is the NPV of this project? (Enter answer in millions.)

Answer 1

Discount rate	12.800%
Year	0	1	2	3	4	5
Cash flow stream	-13.7	6.1	6.1	6.1	6.1	1.3
Discounting factor	1.000	1.128	1.272	1.435	1.619	1.826
Discounted cash flows project	-13.700	5.408	4.794	4.250	3.768	0.712
NPV = Sum of discounted cash flows
NPV Project =	5.23
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor