Question
In: Finance
A project has an initial outlay of $4,975. It has a single payoff at the end...
A project has an initial outlay of $4,975. It has a single payoff at the end of year 6 of $7,589. What is the net present value (NPV) of the project if the company’s cost of capital is 12.36 percent?
Round the answer to two decimal places.
Solutions
Expert Solution
Solution :
The Net Present Value of a project is the present value of its future cash flows minus its initial cash outlay.
Thus, Net Present Value = Present value of future Cash Inflows - Initial Cash outlay
As per the information given in the question we have
Initial Cash outlay = $ 4,975
Single future cash inflow = $ 7,589 ; Year of cash inflow = 6 ; Discount rate = 12.36 %
The present value factor at 12.36 % discount rate in year 6 = PVF ( 12.36 % , 6 ) = 0.496969
Thus the Present value of future cash inflow = $ 7,589 * PVF( 12.36 %, 6 )
= $ 7,589 * 0.496969
= $ 3,771.497741
Thus the present value of Future cash Inflow = $ 3,771.497741
Therefore NPV is
= $ 3,771.497741 - $ 4,975
= - $ 1,203.502259
= - $ 1,203.50 ( when rounded off to two decimal places )
Thus the NPV of the project = - $ 1,203.50
jeff jeffy answered 1 year agoRelated Solutions
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