A 50-year project has a cost of $500,000 and has annual cash flows of $100,000 in...

A 50-year project has a cost of $500,000 and has annual cash flows of $100,000 in years 1-25, and $200,000 in years 26-50. The company's required rate is 8%. Given this information, calculate the NPV of the project.

Expert Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

[100,000/1.08+100,000/1.08^2+100,000/1.08^3+100,000/1.08^4+100,000/1.08^5+100,000/1.08^6+100,000/1.08^7+100,000/1.08^8+100,000/1.08^9+100,000/1.08^10+100,000/1.08^11+100,000/1.08^12+100,000/1.08^13+100,000/1.08^14+100,000/1.08^15+100,000/1.08^16+100,000/1.08^17+100,000/1.08^18+100,000/1.08^19+100,000/1.08^20+100,000/1.08^21+100,000/1.08^22+100,000/1.08^23+100,000/1.08^24+100,000/1.08^25]+[200,000/1.08^26+200,000/1.08^27+200,000/1.08^28+200,000/1.08^29+200,000/1.08^30+200,000/1.08^31+200,000/1.08^32+200,000/1.08^33+200,000/1.08^34+200,000/1.08^35+200,000/1.08^36+200,000/1.08^37+200,000/1.08^38+200,000/1.08^39+200,000/1.08^40+200,000/1.08^41+200,000/1.08^42+200,000/1.08^43+200,000/1.08^44+200,000/1.08^45+200,000/1.08^46+200,000/1.08^47+200,000/1.08^48+200,000/1.08^49+200,000/1.08^50]

=1379219.31

NPV=Present value of inflows-Present value of outflows

=1379219.31-500,000

=$879219.31(Approx).

jeff jeffy answered 1 year ago

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A 50-year project has a cost of $500,000 and has annual cash flows of $100,000 in...

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