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You’ve been asked to evaluate a project. Your estimates say that the first cashflow of $120k...

You’ve been asked to evaluate a project. Your estimates say that the first cashflow of $120k will occur one year from today. You believe the cashflows will increase by 4% per year for 4 additional years. After that point, the cashflows will remain the same for 5 years. The upfront cost to take the project is $950k, and the appropriate discount rate is 6%. What is the project’s NPV?

Please make sure to apply the equation for a perpetuity (c/(r-g)) !

Solutions

Expert Solution

Net present value = Discounted Cash inflow - Cash outflow

PV = C0 + C1/(1+r) + C2/(1+r)2 + … + CT/(1+r)T

PV = Present Value

C = cash flow

r = rate of interest

T = period

jeff jeffy answered 1 month ago
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