Question

In: Finance

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?

Solutions

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


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