Question

In: Finance

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


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