Problem 10-01
NPV
A project has an initial cost of $60,500, expected net cash inflows of $10,000 per year for 11 years, and a cost of capital of 10%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.
Present value of annuity=annuity[1-(1+rate)^-time period]/rate
=10,000[1-(1.1)^-11]/0.1
=10,000*6.495061005
=64950.61
NPV=present value of inflows-present value of outflows
=64950.61-60500
=$4450.61(approx).
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