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Project A will cost $10 million dollars and generate after tax cash flow of $5 million...

Project A will cost $10 million dollars and generate after tax cash flow of $5 million dollars per year for the next three years. Shareholders need to earn 30%. The risk free rate is 3%. The firm's cost of funds is 18%. What is the NPV?

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Expert Solution

Computation of NPV
i ii iii=i*ii
year Cash flow PVIF @ 18% present value
0 -10000000              1.0000     (10,000,000.00)
1 5000000              0.8475         4,237,288.14
2 5000000              0.7182         3,590,922.15
3 5000000              0.6086         3,043,154.36
            871,364.65
Therefore NPV =             871,364.65

jeff jeffy answered 4 months ago
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