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Suppose you have an opportunity to invest in a project, which is expected to generate $6,800...

Suppose you have an opportunity to invest in a project, which is expected to generate $6,800 in year 1, $7,200 in year 2, and $7,500 in year 3. The appropriate risk-adjusted discount rate for the project is 10.5 percent. What is project’s initial investment when the project's NPV is $2,609.25? Assume the tax rate is zero.

$15,000.00

$17,609.25

$20,218.50

$21,500.00
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Answer #1

A. $15,000.00

Initial investment = Present value of cash flows - NPV

Initial investment = ($6,800/1.105 + $7,200/1.1052 + $7,500/1.1053) - $2,609.25

Initial investment = $17,609.25 - $2,609.25

Initial investment = $15,000.00

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