Question

Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 11.71 percent. What is the NPV of a project if the initial costs are $2,491,550 and the project life is estimated as 5 years? The project will produce the same after-tax cash inflows of $500,159 per year at the end of the year. Round the answer to two decimal places.

Answer 1

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$500159[1-(1.1171)^-5]/0.1171

=$500159*3.630824788

=$1,815,989.70

NPV=Present value of inflows-Present value of outflows

=$1,815,989.70-$2,491,550

=($675,560.31)(Negative)(Approx).