Question

# Big Al’s Gas Company owns several gas stations, and they are looking to add another. One...

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?

#### Homework Answers

Answer #1

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -\$500,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the cost of capital of 8%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

Net present value at 8% cost of capital is \$231,755.91.

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