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A 30 year project is estimated to cost $35 million and provideannual cash flows of...

A 30 year project is estimated to cost $35 million and provide annual cash flows of $5 million per year in years 1-5; $4 million per year in years 6-20 and $2 million per year in years 21-30. If the company's required rate of return is 10%, determine the NPV.

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Expert Solution

i ii iii=i*ii
Year Cash flow in million PVIF @ 10% Present value
0 -35 1 $ (35.00)
1 5 0.909091 $     4.55
2 5 0.826446 $     4.13
3 5 0.751315 $     3.76
4 5 0.683013 $     3.42
5 5 0.620921 $     3.10
6 4 0.564474 $     2.26
7 4 0.513158 $     2.05
8 4 0.466507 $     1.87
9 4 0.424098 $     1.70
10 4 0.385543 $     1.54
11 4 0.350494 $     1.40
12 4 0.318631 $     1.27
13 4 0.289664 $     1.16
14 4 0.263331 $     1.05
15 4 0.239392 $     0.96
16 4 0.217629 $     0.87
17 4 0.197845 $     0.79
18 4 0.179859 $     0.72
19 4 0.163508 $     0.65
20 4 0.148644 $     0.59
21 2 0.135131 $     0.27
22 2 0.122846 $     0.25
23 2 0.111678 $     0.22
24 2 0.101526 $     0.20
25 2 0.092296 $     0.18
26 2 0.083905 $     0.17
27 2 0.076278 $     0.15
28 2 0.069343 $     0.14
29 2 0.063039 $     0.13
30 2 0.057309 $     0.11
NPV = $     4.67
answer = $     4.67 million

jeff jeffy answered 2 years ago
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