Leisure Incorporated is evaluating a project that requires an initial investment of $5,000 depreciated straight line over 5 years. The project has the following cash flows and abandonment values are the project's book values at various points throughout its physical life. What is the project's optimal NPV? The firm cost of capital is 10%.
0 | 1 | 2 | 3 | 4 | 5 | |
CASH FLOWS | ($5,000) | $1,000 | $2,000 | $3,000 | $1,500 | $1,000 |
Group of answer choices
$1,461
$1,523
-$455
$1,319
Year | Cash inflows | Present value factor | Present value of cash inflows |
1 | 1000 | 0.9091 | 909 |
2 | 2000 | 0.8264 | 1653 |
3 | 3000 | 0.7513 | 2254 |
4 | 1500 | 0.6830 | 1025 |
5 | 1000 | 0.6209 | 621 |
Total | 6461 |
Net present value (NPV) = Total present value of cash inflows - Initial cost = 6461 - 5000 | 1461 |
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