In: Finance
You're considering a project with initial investment of $120,000. The project is expected to generate $65,000 in cash flow for 3 years and then the company has to pay $50,000 to shut down the operation in year 4. If your cost of capital is 12%, would you carry out the project?
Ans Yes, we will carry out the project since NPV is positive at $ 4343.13
Year | Project Cash Flows (i) | DF@ 12% | DF@ 12% (ii) | PV of Project ( (i) * (ii) ) |
0 | -120000 | 1 | 1 | (1,20,000.00) |
1 | 65000 | 1/((1+12%)^1) | 0.893 | 58,035.71 |
2 | 65000 | 1/((1+12%)^2) | 0.797 | 51,817.60 |
3 | 65000 | 1/((1+12%)^3) | 0.712 | 46,265.72 |
4 | -50000 | 1/((1+12%)^4) | 0.636 | (31,775.90) |
NPV | 4,343.13 |