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A project requires a $12 million initial investment and has expected after-tax cash flows of $2...

A project requires a $12 million initial investment and has expected after-tax cash flows of $2 million in perpetuity. The weighted-average cost of capital is 15%. what is the project's net present value (NPV)?

a. $13.33 million

b. $93.33 million

c. $66.67 million

d. $1.33 million

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Answer #1

Present value of inflow=Annual after-tax cash flows/WACC

=2/0.15

=$13.33 million

NPV=Present value of inflows-Present value of outflows

=13.33-12

= $1.33 million(Approx).

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