Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of
$
and would generate annual net cash inflows of
$
per year for
years. Calculate the project's NPV using a discount rate of
percent.
If the discount rate is
percent, then the project's NPV is
$
NPV = -4,000,000 + $833,333.33 + $771,604.94 + $714,449.02 + $661,526.87 + $612,524.88 + $567,152.66
NPV = $160,591.70
SOLUTION :
Dowling sportswear :
Initial cost = 5500000 ($)
Discount rate , r = 5% = 0.05
=> (1 + r) = 1.05
Project generates $1100000 per year for 9 years.
So,
NPV
= - Initial cost + PV of future cash flows
= - 5500000 + 1100000(1.05^9 - 1)/(0.05*1.05^9)
= 2318603 84 ($)
If the discount rate is 5%, then the project’s NPV = 2318603.84 ($)
(ANSWER).
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