NPV Calculate the net present value (NPV) for a 30-year project with an initial investment of...

Question

Question

Answer 1

Answer #1

Present value of annual cash flows		$ 22,067.22
Initial Investment		$ 25,000.00

Net Present Value		$ -2,932.78

Since, project has negative net present value, it should not be undertaken.

Working:

Present value of annuity of 1	=	(1-(1+i)^-n)/i			Where,
	=	(1-(1+0.18)^-30)/0.18			i	18%
	=	5.51680595			n	30

Present value of annual cash flows	=	Annual Cash flows * Present value of annuity of 1
	=	$ 4,000.00	*	5.516806
	=	$ 22,067.22

Answer 2

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