In: Finance
Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $5,000,000 and would generate annual free cash inflows of $1,100,000 per year for 6 years. Calculate the project's NPV given:
a. A required rate of return of 9 percent
b. A required rate of return of 11 percent
c. A required rate of return of 13 percent
d. A required rate of return of 18 percent
Use NPV function in EXCEL to find the NPV
=NPV(rate,Year1 to Year6 cashflows)-Year0 cashflow
a. =NPV(9%,Year1 to Year6 cashflows)-5000000=-$65489.6
b. =NPV(11%,Year1 to Year6 cashflows)-5000000=-$346408.4
c. =NPV(13%,Year1 to Year6 cashflows)-5000000=-$602695.2
d.=NPV(18%,Year1 to Year6 cashflows)-5000000=-$1152637.2
Cashflows | ||
Year0 | -5000000 | |
Year1 | 1100000 | |
Year2 | 1100000 | |
Year3 | 1100000 | |
Year4 | 1100000 | |
Year5 | 1100000 | |
Year6 | 1100000 | |
9% | NPV | -65489.6 |
11% | NPV | -346408.4 |
13% | NPV | -602695.2 |
18% | NPV | -1152637.2 |