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DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is...

DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $250,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the net present value of this project?

$87,417

$96,320

$104,089

$183,472
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Answer #1

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

=350,000/1.08+325000/1.08^2+250,000/1.08^3+180,000/1.08^4

=$933,472.62

NPV=Present value of inflows-Present value of outflows

=$933,472.62-$750,000

=$183,472(Approx).

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