Question

You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $96k at the end of each of the next five years, plus an additional $1,000k at the end of the fifth year as the final cash flow. You can purchase this project for $509k. If your firm's cost of capital (aka required rate of return) is 15.8%, what is the NPV of this project? Provide your answer in units of $1000, thus, $15000 = 15k and thus you should enter 15 for your answer.

Answer 1

NPV = Present Value of Cash Inflows - Present Value of Cash Outflows

= [ $ 96,000 * 1/(1.158)^1 + $ 96,000 * 1/(1.158)^2+$ 96,000 * 1/(1.158)^3+$ 96,000 * 1/(1.158)^4+$ 96,000 * 1/(1.158)^5+ $ 1,000,000* 1/(1.158)^5] - $ 509,000

= $ 287043.06

= 287.04

Answer : 287.04