Your company is considering a project with the following cash flows: an immediate investment of $100,000...
Your company is considering a project with the following cash flows: an immediate investment of $100,000 and cash inflows of $25,000 for 5 years (starting in year 1). If your discount rate for this project is 6%, what is the project's NPV?
$205,309
$25,000
$5,309
$105,309
Homework Answers
C. $5,309
The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 9 percent required return is:
NPV = -$100,000 + $25,000(PVIFA6%, 5)
NPV = -$100,000 + $105,309
NPV = $5,309
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