(3 of 10 A project requires an initial investment of $2,000,000, and produces an annual inflow...

Question

Question

(3 of 10 A project requires an initial investment of $2,000,000, and produces an annual inflow of $500,000 at the end of year

Answer 1

Answer #1

NPV

$ 4,37,001.13

Step-1:Present value of cash inflows

Present value of annual cash inflow		=	$ 5,00,000	*	4.42261	=	$ 22,11,305.22
Present value of terminal cash inflow		=	$ 6,00,000	*	0.37616	=	$ 2,25,695.92

Present value of cash inflows							$ 24,37,001.13

Working:

Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
	=	(1-(1+0.13)^-7)/0.13		i	=	13%
	=	4.42261		n	=	7

Present value of 1	=	(1+i)^-n
	=	(1+0.13)^-8
	=	0.37616

Step-2:Calculation of NPV

Present value of cash inflows			$ 24,37,001.13
Initial investment			$ 20,00,000.00

NPV			$ 4,37,001.13

Answer 2

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