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In: Accounting

A project costs $1000 today and will generate a cash flow of $3173 three years from...

A project costs $1000 today and will generate a cash flow of $3173 three years from now. If the interest rate is 3%, what is the net present value of the project?

Solutions

Expert Solution

Correct Answer:

Net Present Value (NPV)

$         (1,025)

Working:

Project Alpha

Year

Cash Inflows

PV factor at 12%

Present value

1

$            3,173

$     0.9709

$            3,081

2

$            3,173

$     0.9426

$            2,991

3

$            3,173

$     0.9151

$            2,904

Total

$            8,975

(-) Initial Cost

$         10,000

Net Present Value (NPV)

$         (1,025)

End of Answer.

Thanks

ekkarill92 answered 2 years ago
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