Question

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are two and two and a half years, respectively.
Time 0, 1, 2, 3, 4, 5
Cash Flow: -125,000/ 65,000, 78,000, 105,000, 105,000, 25,000
Use the NPV decision rule to evaluate this project; should it be accepted or rejected? Calculate the NPV

Answer 1

Ans NPV = $ 179602.71

The project must be accepted since NPV is positive.

Year	Project Cash Flows (i)	DF@ 8%	DF@ 8% (ii)	PV of Project ( (i) * (ii) )
0	-125000	1	1	(1,25,000.00)
1	65000	1/((1+8%)^1)	0.926	60,185.19
2	78000	1/((1+8%)^2)	0.857	66,872.43
3	105000	1/((1+8%)^3)	0.794	83,352.39
4	105000	1/((1+8%)^4)	0.735	77,178.13
5	25000	1/((1+8%)^5)	0.681	17,014.58
		NPV		1,79,602.71