Question

1 30 points. Project K will cost $52,000, its free cash flows will be $15,000 per year for 6 years, and its cost of capital is 12 percent. In addition, there is expected terminal cash inflow of $7,000 in year 6 a. Find the project's NPV b. Using "a", should the project be accepted or rejected? Why?

Answer 1

rate positively ..

Ans a)
	Computation of NPV
	i	ii	iii	iv	v=ii+iii+iv	vi	vii=iv*v
	year	Investment	Cash flow	Terminal value	Net cash flow	PVIF @12%	Present value
	0	-52000			-52000	1.0000	(52,000.00)
	1		15000		15000	0.8929	13,392.86
	2		15000		15000	0.7972	11,957.91
	3		15000		15000	0.7118	10,676.70
	4		15000		15000	0.6355	9,532.77
	5		15000		15000	0.5674	8,511.40
	6		15000	7000	22000	0.5066	11,145.88
							13,217.53
	Therefore NPV =		13,217.53
Ans b)	Project should be accepted. Because project has positive NPV .