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A project has an initial cost of $86,229, and promises to pay a fixed cash flow...

A project has an initial cost of $86,229, and promises to pay a fixed cash flow per year for 3 years. It has been determined that using a discount rate of 11.1 percent, its net present value is $115,414. What must be the expected annual cash flow?

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Answer #1

NPV = PV of Cash Inflows - PV of Cash Outflows

$115,414 = [(CF/1.111] + [(CF/1.1112] + [(CF/1.1113] - $86,229

$201,643 = 0.90CF + 0.81CF + 0.73CF

$201,643 = 2.44CF

CF = $201,643 / 2.44 = $82,658.50

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