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Harry's Inc. is considering a project that has the following cash flow and WACC data. What...

Harry's Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected. WACC: 13.25%

Year 0 1 2 3 4 5 Cash flows -$1,000 $300 $300 $300 $300 $300

Solutions

Expert Solution

NPV is calculated as follows:

Year CF Discount Factor Discounted CF
0 $-1,000.00 1/(1+0.135)^0= 1 1*-1000= $ -1,000.00
1 $      300.00 1/(1+0.135)^1= 0.881057269 0.881057268722467*300= $      264.32
2 $      300.00 1/(1+0.135)^2= 0.776261911 0.776261910768693*300= $      232.88
3 $      300.00 1/(1+0.135)^3= 0.683931199 0.683931198915148*300= $      205.18
4 $      300.00 1/(1+0.135)^4= 0.602582554 0.602582554110263*300= $      180.77
5 $      300.00 1/(1+0.135)^5= 0.530909739 0.530909739304196*300= $      159.27
NPV = Sum of all Discounted CF $         42.42

NPV is 42.42 and the project should be selected because the NPV is positive


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