Question

In: Finance

You're considering a project with initial investment of $120,000. The project is expected to generate $65,000...

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?

Solutions

Expert Solution

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

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