A firm is considering an investment project that costs $250,000 today and $250,000 in one year, but would produce benefits of $50,000 a year, starting in one year, forever. What is the NPV of this investment project if the firm applies an annual discount rate of 7.1% to all future cash flows?
NPV = present value of cash inflow- the present value of cash outflow.
Discounted at the cost of capital/required rate of return (7.1%)
NPV = $174,113.31
As NPV is positive the project can be accepted.
A firm is considering an investment project that costs $250,000 today and $250,000 in one year,...
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