Question

Tuttle Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? 

Note that if a project's projected NPV is negative, it should be rejected. 

WACC = 14.50% 

Year:	0	1	2	3	4
Cash Flow:	$1,000	$350	$350	$350	$350

Answer 1

CT C1 + 1+r (1r) C2 NPV=-Co (1r) -Co= Initial Investment C = Cash Flow rDiscount Rate T Time

$NPV = -1000 + \frac{350}{(1 + 0.1450)^1} + \frac{350}{(1 + 0.1450)^2} + \frac{350}{(1 + 0.1450)^3} + \frac{350}{(1 + 0.1450)^4}$

NPV = -1000 + 305.68 + 266.97 + 233.16 + 203.63

NPV = $9.43

Answer 2

SOLUTION :

WACC = 14.50% 

Using the formula for NPV 

= - Investment + Constant CF each year ((1 + WACC/100)^(years of operation) -1) 

Divided by (WACC/100 * (1 +WACC/100)^years of operation)

NPV = - 1000 + 350(1.1450^4 -1)/(0.1450 *1.1450^4)

=> NPV = 9.43 ($) (ANSWER).

(NPV being positive, project is acceptable)