Analyze a project which has an investment cost of$2,000. Every year, starting next year (t=1), the...

Analyze a project which has an investment cost of $2,000. Every year, starting next year (t=1), the project will generate $100 in revenue, but it will also incur $30 in expenses. The project will be considered an on-going project going on forever. If the cost of financing this project is 6%, then the NPV of the project is what?

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Expert Solution

NPV = PV OF CF - INVESTMENT

Here, with income of 100, expense of 30 is also involved, so net flow = 70 , it is a perpetual cash flow

NPV = CF/rate - INVESTMENT

NPV = 70/0.06 - 2000 = -833.33

Answer : -833.33

jeff jeffy answered 2 years ago

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