In: Finance
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)) !
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