How much could NPV be affected by a worst-case scenario of 25 percent reduction from the...

How much could NPV be affected by a worst-case scenario of 25 percent reduction from the $3 million in expected annual cash flows on a five-year project with 10 percent cost of capital compounded quarterly?

A)$4,317,832

B)$3,249,557

C)$2,843,090

D)$2,815,611

Solutions

Expert Solution

Effective annual rate =	10.38%
(1+10%/4)^4-1


Annual cash flow reduction =	750000
3000000*25%

Present value of cash flow effect
put in calculator

FV		0
PMT		-750000
I		10.38%
N		5

Compute PV	$2,815,611

Ans = option D)	$2,815,611

jeff jeffy answered 2 years ago

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