Question

Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted. Year 0: ($1,250,000) Year 1: $200,000 Year 2: $500,000 Year 3: $400,000 Year 4: $300,000 Year 5: $200,000 Suppose that the appropriate discount rate for this project is 7.7%, compounded annually. Calculate the net present value for this proposed project. Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. If the NPV is negative, include a minus sign. Do not type the $ symbol.

Answer 1

present value factor = 1/(1+r)^n

here,

r=7.7% =>0.077

n=0,1,2,3,4,5.

year	cash flow	PV factor	cash flow * PV factor
0	(1,250,000)	1/(1.077)^0=>1	(1,250,000*1)=>(1,250,000)
1	200,000	1/(1.077)^1=>0.92850511	(200,000*0.92850511)=>185,701.022
2	500,000	1/(1.077)^2=>0.86212173	(500,000*0.86212173)=>431,060.865
3	400,000	1/(1.077)^3=>0.80048443	(400,000*0.80048443)=>320,193.772
4	300,000	1/(1.077)^4=>0.74325388	(300,000*0.74325388)=>222,976.164
5	200,000	1/(1.077)^5=>0.69011503	(200,000*0.69011503)=>138,023.006
		NPV	$47,954.83