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?

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

jeff jeffy answered 5 months ago

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