Compute the NPV statistic for Project Y if the appropriate cost of capital is 11 percent....

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Compute the NPV statistic for Project Y if the appropriate cost of capital is 11 percent. (Ne minus sign. Do not round interm

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Answer 1

Answer #1

The Net Present Value (NPV) of the Project

Year	Annual cash flows ($)	Present Value Factor (PVF) at 11.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]

1	3,710	0.900901	3,342.34
2	4,540	0.811622	3,684.77
3	1,880	0.731191	1,374.64
4	660	0.658731	434.76

TOTAL		8,836.51

Net Present Value (NPV) of the Project = Present Value of annual cash inflows – Initial Investment

= $8,836.51 - $8,400

= $436.51

“Hence, the Net Present Value (NPV) of the Project will be $436.51”

DECISION

“YES”. The Project should be accepted, since the Project has a Positive NPV of $436.51.

NOTE

The formula for calculating the Present Value Inflow Factor (PVIF) is [1 / (1 + r)n], where “r” is the Discount Rate/Cost of capital and “n” is the number of years.

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Answer 2

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