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10) Fairfax Paint is evaluating a project that would cost 6,728 dollars today. The project is...

10) Fairfax Paint is evaluating a project that would cost 6,728 dollars today. The project is expected to have the following other cash flows: 2,220 dollars in 1 year, 2,506 dollars in 3 years, and 3,169 dollars in 4 years. The internal rate of return for the project is 5.89 percent and the cost of capital for the project is 5.22 percent. What is the net present value of the project?

Solutions

Expert Solution

Rate = R = 5.22%

Year

Cash flows

Discount factor = Df = 1/(1+R)^Year

Present value = Df x Cash flows

0

                        (6,728.00)

                                           1.00000

              (6,728.00)

1

                          2,220.00

                                           0.95039

                2,109.87

2

                                      -  

                                           0.90324

                            -  

3

                          2,506.00

                                           0.85843

                2,151.23

4

                          3,169.00

                                           0.81584

                2,585.41

Total of Present Value = NPV=

$118.50

NPV = $118.50 (rounding to two decimal places)

jeff jeffy answered 2 years ago
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