Question

The BIG Corporation is considering an investment of $50,000, which will provide the following estimated net cash flows:              

Year     Cash Flow

1 $13,871
2 13,871
3 13,871
4 13,871
5 13,871

The cost of capital is 10%

What is the Net Present Value of the project?

a). 12%

b). $2,582

c). $52,585

d). $102,582

Answer 1

Project
Discount rate	10.000%
Year	0	1	2	3	4	5
Cash flow stream	-50000	13871	13871	13871	13871	13871
Discounting factor	1.000	1.100	1.210	1.331	1.464	1.611
Discounted cash flows project	-50000.000	12610.000	11463.636	10421.488	9474.080	8612.800
NPV = Sum of discounted cash flows
NPV Project =	2582.00
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor