Question

A project has an initial cost of $58,975, expected net cash inflows of $12,000 per year for 11 years, and a cost of capital of 10%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

Answer 1

The project's NPV is as follows:

Note: Project's NPV is calculating by constructing a time line.

Year	Annual Cash inflows	PV Factor @ 10%	Present value
1	12,000	0.90909	10,909.08
2	12,000	0.82645	9,917.40
3	12,000	0.75131	9,015.72
4	12,000	0.68301	8,196.12
5	12,000	0.62092	7,451.04
6	12,000	0.56447	6,773.64
7	12,000	0.51316	6,157.92
8	12,000	0.46651	5,598.12
9	12,000	0.42410	5,089.20
10	12,000	0.38554	4,626.48
11	12,000	0.35049	4,205.88
		Total	$77,941

Net Present value (NPV) = Total Present value - Initial Investment cost

                                    = $77,941 - $58,975

                                     = $18,966

The project's NPV is $18,966