Question

NPV   Calculate the net present value for a 25​-year

project with an initial investment of $50,000

and a cash inflow of $8,000 per year. Assume that the firm has an opportunity cost of 18​%.

Comment on the acceptability of the project.

Answer 1

Ans NPV = -$6264.75

Reject the project since NPV is negative.

Year	Project Cash Flows (i)	DF@ 18%	DF@ 18% (ii)	PV of Project ( (i) * (ii) )
0	-50000	1	1	(50,000.00)
1	8000	1/((1+18%)^1)	0.847	6,779.66
2	8000	1/((1+18%)^2)	0.718	5,745.48
3	8000	1/((1+18%)^3)	0.609	4,869.05
4	8000	1/((1+18%)^4)	0.516	4,126.31
5	8000	1/((1+18%)^5)	0.437	3,496.87
6	8000	1/((1+18%)^6)	0.370	2,963.45
7	8000	1/((1+18%)^7)	0.314	2,511.40
8	8000	1/((1+18%)^8)	0.266	2,128.31
9	8000	1/((1+18%)^9)	0.225	1,803.65
10	8000	1/((1+18%)^10)	0.191	1,528.52
11	8000	1/((1+18%)^11)	0.162	1,295.35
12	8000	1/((1+18%)^12)	0.137	1,097.76
13	8000	1/((1+18%)^13)	0.116	930.30
14	8000	1/((1+18%)^14)	0.099	788.39
15	8000	1/((1+18%)^15)	0.084	668.13
16	8000	1/((1+18%)^16)	0.071	566.21
17	8000	1/((1+18%)^17)	0.060	479.84
18	8000	1/((1+18%)^18)	0.051	406.64
19	8000	1/((1+18%)^19)	0.043	344.61
20	8000	1/((1+18%)^20)	0.037	292.05
21	8000	1/((1+18%)^21)	0.031	247.50
22	8000	1/((1+18%)^22)	0.026	209.74
23	8000	1/((1+18%)^23)	0.022	177.75
24	8000	1/((1+18%)^24)	0.019	150.63
25	8000	1/((1+18%)^25)	0.016	127.66
		NPV		(6,264.75)