question 1 ) Middelfield Motors is evaluating a project that would cost 4,400 dollars today. The...

question 1 )

Middelfield Motors is evaluating a project that would cost 4,400 dollars today. The project is expected to have other cash flows: 2,800 dollars in 1- year, -2,660 dollars in 3 years, and 5,060 dollars in 4 years. The cost of the project is 6.1 percent. What is the net present value of the project?

question 2)

Green Forest Aviation is evaluating a project thag would cosg 8,030 dollars today. The project is expected to produce annual cash flows of 1,163.55 dollars forever with the first annual cash flownexpected in 1 year. The cost of capital associated with the project is 12.16 percent and the projects internal rate of return is 14.49 percent. What is the net present calue (NPV) of the projecf?

question 3)

Gomi Waste Disposal is evaluating a project that would require an initial investment of 40,700 dollars today. The project is then expected to produce annual cash flows that grow by 4.64 percent per year forever. The first annual cash flow is expected in 1 year and is expected to be 5,790 dollars. The projects internal rate of return is 18.97 percent and its cost of capital is 11.04 percent. What is the net present value (NPV) of the project?

Expert Solution

Solution 1
			6%
	Year	Net cashflow	PV factor, 1/(1+r)^t	PV-Cash Flow-1
	0	$ (4,400.00)	1.0000	$ (4,400.00)
	1	$ 2,800.00	0.9425	$ 2,639.02
	2	$ -	0.8883	$ -
	3	$ (2,660.00)	0.8372	$ (2,227.08)
	4	$ 5,060.00	0.7891	$ 3,992.91
			NPV	$ 4.85

Solution 2
		Investment	$ 8,030.00
		Annual cashflow	$ 1,163.55
		Cost of capital	12.16%
		PV of inflows=	Annual cashflow/cost of capital
		PV of inflows=	1163.55/12.16%
		PV of inflows=	$ 9,568.67

		NPV=	9,568.67-8030
		NPV=	$ 1,538.67


Solution 3
		Investment	$40,700.00
		Year-1 cashlow	$ 5,790.00
		Growth rate	4.64%
		Cost of capital	11.04%

		PV of inflows=	Annual cashflow/(cost of capital-growth)
		PV of inflows=	5790/(11.04%-4.64%)
		PV of inflows=	$90,468.75

		NPV=	90468.75-40700
		NPV=	$49,768.75

jeff jeffy answered 2 years ago

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