Question

Let's say you have the opportunity to invest in a project that will require you to invest $100,000 today. You will receive positive after tax cash flows of $20,000 at the end of each of the next six years. At the end of that sixth year, you will also receive a terminal value payment of $15,000 after tax. Your cost of capital is 8.0%. What is the NPV of the project? Round to the nearest $ and use the $ symbol.

Answer 1

NPV = Present Value of Cash Inflows - Present Value of Cash Outflows

= [$ 20,000 *1/(1.08) ^ 1 +$ 20,000 *1/(1.08) ^2+$ 20,000 *1/(1.08) ^3+$ 20,000 *1/(1.08) ^4+$ 20,000 *1/(1.08) ^5+$ 35,000 *1/(1.08) ^6] - $ 100,000

= $ 1,910.14

= $ 1,910

Hence the correct answer is $ 1,910