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A project requires an initial investment (or you may say, ‘cash outflow’) of $225,000 and is...

A project requires an initial investment (or you may say, ‘cash outflow’) of $225,000 and is expected to generate the following net cash inflows: Year 1: $125,000 Year 2: $120,000 What is Net Present Value (NPV) of the project if the minimum required rate of return (or, you may say firm’s cost of capital) is 5%?

3012.42
2312.23
3201.21
2891.16
business   accounting   
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Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=125,000/1.05+120,000/1.05^2

=$227,891.16

NPV=Present value of inflows-Present value of outflows

=$227,891.16-$225,000

=$2,891.16(Approx).

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