In: Finance
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
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 | ||