Question

4. An investment project has an installed cost of $518,297. The cash flows over the 4-year life of the investment are projected to be $287,636, $203,496, $103,802, and $92,556, respectively. What is the NPV of this project if the discount rate is 12.5 percent? Should this project be accepted?

$28,852.12. Yes. Please Show All Work

Answer 1

Npv of the project is nothing but the present value of cash flow

=-investment+present value of cash flows

if the NPV is positive we will accept the project and if negative we reject it

=-518297+(287636/((1+12.5%)^1))+(203496/((1+12.5%)^2))+(103802/((1+12.5%)^3))+(92556/((1+12.5%)^4))

=28852.12

Yes as NPV is positive