2.3 A project will require an initial investment of $620,000 and will return $165,000 of operating...

2.3 A project will require an initial investment of $620,000 and will return $165,000 of operating cash flows each year for five years. The required rate of return is 9%. How much is the project’s net present value? Based on this analysis, should the company proceed with the project? (2.5)

Expert Solution

NPV means net present value of all future cash flows. NPV is widely accepted technique for making investment decisions, here the future cash flows are discounted at a rate which is deemed appropriate for management.

Business is advised to accept the project if NPV is greater than or equal to Zero.

Following in attached photo of our cash flow stream discounted at 9%

Here as NPV is positive the project should be accepted.

ekkarill92 answered 2 years ago

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