Homework Answers
Initial investment = $340,000
Annual cash flow = $61,850
Life of project = 8 years
Cost of capital = 14%
NPV = -$340,000 + $61,850/1.14 + $61,850/1.14^2 + $61,850/1.14^3
+ …. + $61,850/1.14^8
NPV = -$340,000 + $61,850 * (1 - (1/1.14)^8) / 0.14
NPV = -$340,000 + $61,850 * 4.638864
NPV = -$53,086.26
The NPV of the project is -$53,086.26
You should reject this project as its NPV is negative.
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