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In: Finance

AS is evaluating a project that is expected to generate the following cash flow stream: Expected...

AS is evaluating a project that is expected to generate the following cash flow stream:

Expected Cash Flow

Now -R 100,000

End-of-year 1 R 50,000

End-of-year 2 R 50,000

End-of-year 3 R 50,000

Required:

2.1. If the project’s cost of capital is 12 per cent, what is the present value of the project’s

expected cash flow stream?

2.2. What is the net present value of the project?

Solutions

Expert Solution

2.1 PV = 120,091.56
2.2 NPV =20,091.56
Statement showing Cash flows
Particulars Time PVf 12% Amount PV
Cash Outflows                        -                        1.00                       (100,000.00)                       (100,000.00)
PV of Cash outflows = PVCO                       (100,000.00)
Cash inflows                    1.00                 0.8929                           50,000.00                           44,642.86
Cash inflows                    2.00                 0.7972                           50,000.00                           39,859.69
Cash inflows                    3.00                 0.7118                           50,000.00                           35,589.01
PV of Cash Inflows =PVCI                         120,091.56
NPV= PVCI - PVCO                           20,091.56

jeff jeffy answered 2 years ago
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