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Kinetics is considering a project that has a NINV of $874,000 and generates net cash flows...

Kinetics is considering a project that has a NINV of $874,000 and generates net cash flows of $170,000 per year for 12 years. What is the NPV of this project if Kinetics cost of capital is 14%?

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Expert Solution

NPV Calculation

NPV is the sum of the present value of all the future cash flows:

Following table shows the cash flows of the investment:

Year 0 1 2 3 4 5 6 7 8 9 10 11 12
Cash flows -874000 170000 170000 170000 170000 170000 170000 170000 170000 170000 170000 170000 170000

C0 = -874000

C1 = C2 =.....= C12 = 170000

NPV = C0 + C1/(1+r)1 + C2/(1+r)2 + C3/(1+r)3 + C4/(1+r)4 + C5/(1+r)5 + C6/(1+r)6 + C7/(1+r)7 + C8/(1+r)8​​​​​​​ + C9/(1+r)9​​​​​​​​​​​​​​ + C10/(1+r)10​​​​​​​ + C11/(1+r)11 + C12/(1+r)12​​​​​​​​​​​​​​

Cost of capital = r = 14%

NPV = -874000 + 170000/(1.14)1 + 170000/(1.14)2 + 140000/(1.14)3 + 170000/(1.14)4 + 170000/(1.14)5 + 170000/(1.14)6​​​​​​​ + 170000/(1.14)7​​​​​​​ + 170000/(1.14)8​​​​​​​ + 170000/(1.14)9​​​​​​​​​​​​​​ + 170000/(1.14)10​​​​​​​ + 170000/(1.14)11 + 170000/(1.14)12​​​​​​​​​​​​​​

NPV = $88249.661334

Answer -> 88249.66 (Rounded to two decimals places)

jeff jeffy answered 2 weeks ago
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