Question

In: Finance

Using a cost of capital of 13​%, calculate the net present value for the project shown...

Using a cost of capital of 13​%, calculate the net present value for the project shown in the following table and indicate whether it is​ acceptable, LOADING.... The net present value​ (NPV) of the project is ​$

Initial investment   -1,151,000
Year   Cash inflows
1   84,000
2   136,000
3   192,000
4   255,000
5   318,000
6   382,000
7   277,000
8   100,000
9   42,000
10   25,000

Solutions

Expert Solution

present value factor = 1/(1+r)^n

here,

r=13%=>0.13.

n=0,1,2,3,4,5,6,7,8,9,10.

The following is the calculation of net present value;

year cash flow PV factor cash flow* PV factor
0 -1,151,000 1/(1.13)^0=>1 (-1,151,000*1)=>-1,151,000
1 84,000 1/(1.13)^1=>0.88496 (84,000*0.88496)=>74,336.64
2 136,000 1/(1.13)^2=>0.78315 (136,000*0.78315)=>106,508.40
3 192,000 1/(1.13)^3=>0.69305 (192,000*0.69305)=>133,065.60
4 255,000 1/(1.13)^4=>0.61332 (255,000*0.61332)=>156,396.66
5 318,000 1/(1.13)^5=>0.54276 (318,000*0.54276)=>172,597.68
6 382,000 1/(1.13)^6=>0.48032 (382,000*0.48032)=>183,482.24
7 277,000 1/(1.13)^7=>0.42506 (277,000*0.42506)=>117,741.62
8 100,000 1/(1.13)^8=>0.37616 (100,000*0.37616)=>37,616
9 42,000 1/(1.13)^9=>0.33288 (42,000*0.33288)=>13,980.96
10 25,000 1/(1.13)^10=>0.29459 (25,000*0.29459)=>7,364.75
NPV= -$147,909.45

SInce NPV is negative the project cannot be accepted.


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