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You are evaluating purchasing the rights to a project that will generate after tax expected cash...

You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $84k at the end of each of the next five years, plus an additional $1,000k at the end of the fifth year as the final cash flow. You can purchase this project for $586k. If your firm's cost of capital (aka required rate of return) is 13.9%, what is the NPV of this project?  Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.

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Expert Solution

COST OF THE PROJECT IS $586000
STATEMENT OF PRESENT VALUE OF INFLOWS
YEARS INFLOWS ADDITIONAL INFLOWS TOTAL INFLOWS PV FACTOR PV
(@13.9%) (TOTAL INFLOWS*PVF)
1 84,000.00                       -            84,000.00          0.88                 73,752.00
2 84,000.00                       -            84,000.00          0.77                 64,680.00
3 84,000.00                       -            84,000.00          0.68                 57,120.00
4 84,000.00                       -            84,000.00          0.59                 49,560.00
5 84,000.00 1,000,000.00    1,084,000.00          0.52               563,680.00
TOTAL PV OF INFLOWS               808,792.00
NPV OF THE PROJECT = PV OF CASH INFLOWS - PROJECT COST
NPV   = 808792-586000
NPV   = 222792
ANSWER IN UNITS OF $1000 IS $ 222.792

jeff jeffy answered 1 year ago
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