Question

Which of the following values comes closest to the net present value of a project that requires an initial investment of $250 and produces cash flows of $60 per year for 10 consecutive years beginning at the end of year 5 (the cash flows go from the end of year 5 through the end of year 14)? The required rate of return is 13%?

	a.	$1.81
	b.	($17.23)
	c.	($64.70)
	d.	($34.55)
	e.	($50.32)

Answer 1

Ε F 017 fx =SUM(D2:016) B 1 Year Cash flows Pv@13% Present Value 2 0 $ (250.00) 1.0000 $ 250.00) 11 $ 0.8850 $ 2 $ - 0.7831 $ 5 3 $ 0.6931$ . 6 4 $ 0.6133 $ 7 5 $ 60.00 0.5428 $ 32.57 8 6 $ 60.00 0.4803 $ 28.82 9 7 $ 60.00 0.4251 $ 25.50 10 8 $ 60.00 0.3762 $ 22.57 11 9 $ 60.00 0.3329 $ 19.97 12 10$ 60.00 0.2946 $ 17.68 13 11 $ 60.00 0.2607 $ 15.64 14 12 $ 60.00 0.2307 $ 13.84 15 13 $ 60.00 0.2042 $ 12.25 16 14 $ 60.00 0.1807 $ 10.84 17 NPV $ (50.32). Answer E

foc =SUM(D2:016) Cash flows Pv@13% 1 Year 20 Nm+mod =C2/1.13 =C3/1.13 =C4/1.13 =C5/1.13 =C6/1.13 =C7/1.13 =C8/1.13 =C9/1.13 =C10/1.13 =C11/1.13 =C12/1.13 =C13/1.13 =C14/1.13 C15/1.13 NPV Present Value =B2*C2 =B3*C3 =B4*C4 =B5*C5 =B6*C6 =B7*07 =B8*C8 =B9*C9 =B10*C10 =B11*C11 =B12*C12 =B13*C13 =B14*C14 =B15*C15 =B16*C16 =SUM(D2:016) 11 9 12 10 13 11 14 12 15 13 16 14 17 Answer E