Question

In: Finance

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

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