Question

A company is considering an investment that will cost $743,000 and have a useful life of 8 years. The cash flows from the project are expected to be $410,000 per year in the first two years then $142,000 per year for the last 6 years. If the appropriate discount rate is 12.7 percent per annum, what is the NPV of this investment (to the nearest dollar)?

Select one:

a. $394283

b. $1880283

c. $384492

d. $516026

Answer 1

Year	Cash Flow	PV Factor	PV Of Cash Flow
a	b	c=1/1.127^a	d=b*c
0	$   -7,43,000	1	$     -7,43,000.00
1	$    4,10,000	0.887311	$       3,63,797.69
2	$    4,10,000	0.787322	$       3,22,801.86
3	$    1,42,000	0.698599	$           99,201.12
4	$    1,42,000	0.619875	$           88,022.29
5	$    1,42,000	0.550022	$           78,103.19
6	$    1,42,000	0.488041	$           69,301.85
7	$    1,42,000	0.433045	$           61,492.33
8	$    1,42,000	0.384245	$           54,562.85
NPV			$             3,94,283
Correct Option : a