Question

A project has an initial cost of $70,225, expected net cash inflows of $12,000 per year for 12 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

Answer 1

The project's NPV is as follows:

Note: Project's NPV is calculating by constructing a time line.

Year	Annual cash flow	Pv Factor @ 8%	Present Value
1	12,000	0.9259259	11,111.11
2	12,000	0.8573388	10,288.07
3	12,000	0.7938322	9,525.99
4	12,000	0.7350299	8,820.36
5	12,000	0.6805832	8,167.00
6	12,000	0.6301696	7,562.04
7	12,000	0.5834904	7,001.89
8	12,000	0.5402689	6,483.23
9	12,000	0.5002490	6,002.99
10	12,000	0.4631935	5,558.32
11	12,000	0.4288829	5,146.59
12	12,000	0.3971138	4,765.37
		Total	$90,433

The Project's Net Present Value (NPV) = Total Present value - Initial Investment cost

                                                         = $90,433 - $70,225

                                                          = $20,208

The Project's Net Present Value (NPV) is $20,208