Question

Project Z has an initial investment of $92,000. The project is expected to have cash inflows of $25,000 at the end of each year for the next 13 years. The corporation has a WACC of 11%. Calculate the NPV for project Z.

Answer 1

Calculation of NPV of the Project Z (All amounts are in $)

Particulars	Cash Flows(A)	Discounting Factor(B)	Present Value of Cash Outflows(A*B)	Present Value of Cash Inflows(A*B)
Initial Investment	-92000	1	92000
Cash Inflows	25000	0.900901		22522.52
	25000	0.811622		20290.56
	25000	0.731191		18279.78
	25000	0.658731		16468.27
	25000	0.593451		14836.28
	25000	0.534641		13366.02
	25000	0.481658		12041.46
	25000	0.433926		10848.16
	25000	0.390925		9773.119
	25000	0.352184		8804.612
	25000	0.317283		7932.083
	25000	0.285841		7146.021
	25000	0.257514		6437.856
NPV= PV of Cash Inflows-PV of Cash Outflows				76746.76

Note- Calculation of discounting factors-

Year-1= 1/1.11 = 0.900901

Year-2 = 1/(1.11)^2 = 0.811622

Year-3 = 1/(1.11)^3 = 0.731191 and so on for the years thereafter.