Scott Enterprises is considering a project that has the following cash flow and cost of capital...

Scott Enterprises is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected.

r:	11.00%
Year	0	1	2	3	4
Cash flows	−$1,000	$350	$350	$350	$350

Reed Enterprises is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.

r:	10.00%
Year	0	1	2	3
Cash flows	−$1,050	$450	$460	$470

Solutions

Expert Solution

Answer :

Calculation of Project's NPV of Scott Enterprises

Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow

Present Value of Cash Outflow = 1000

Below is the table showing calculation of Present value of Cash Inflow

Year	Cash Flows	PVF @11%	Present Value of cash Flows
1	350	0.900900901	315.3153153
2	350	0.811622433	284.0678516
3	350	0.731191381	255.9169835
4	350	0.658730974	230.555841
		Present value of Cash Flows	1085.855991

Note Present value factors can be calculates as 1 / (1 + 0.11)n put n as 1,2,3, and 4.

Net Present Value = 1085.855991 - 1000

= $85.855991

Calculation of Project's NPV of Reed Enterprises

Net Present Value = Present Value of Cash Inflow - Present Value of Cash Outflow

Present Value of Cash Outflow = 1050

Below is the table showing calculation of Present value of Cash Inflow

Year	Cash Flows	PVF @10%	Present Value of cash Flows
1	450	0.909090909	409.0909091
2	460	0.826446281	380.1652893
3	470	0.751314801	353.1179564

		Present value of Cash Flows	1142.374155

Note Present value factors can be calculates as 1 / (1 + 0.10)n put n as 1,2,and 3

Net Present Value = 1142.374155 - 1050

= $92.374155

jeff jeffy answered 1 year ago

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