Big Al’s Gas Company owns several gas stations, and they are looking to add another. One station they are evaluating is located at a site that has been leased. The lease currently has 30 years before expiration (so the last cash flow will occur at t = 30). The gas station is expected to generate a net cash flow of $65,000 for 30 years starting at the end of the first year. If Big Al needs to invest $500,000 in the project with a cost of capital of 8%, what is the NPV of this gas station?
Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:
Net present value at 8% cost of capital is $231,755.91.
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