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Middlefield Motors is evaluating a project that would cost 4,500 dollars today. The project is expected...

Middlefield Motors is evaluating a project that would cost 4,500 dollars today. The project is expected to have the following other cash flows: 2,920 dollars in 1 year, -2,210 dollars in 2 years, and 6,160 dollars in 4 years. The cost of capital of the project is 7.04 percent. What is the net present value of the project?

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Answer:

Present value of inflows is given by the formula as cash inflow X Present value of discounting factor(rate%,time period)

=2920/1.0704 + 6160 /1.0704^4

=$7420.366

Present value of outflows=4500+2210/1.0704^2

=$6428.857

NPV=Present value of inflows-Present value of outflows

=$7420.366-$6428.857

which is equal to

=$991.5088

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