In: Finance
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?
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 |