A firm is considering a project that has the following estimated cashflows:
If the firm is facing a discount rate of 11%, what is the NPV of this project?
Ignore taxes.
$435,229 |
||
$425,229 |
||
$567,229 |
||
$373,229 |
A.435,229.
net increase in cash flows = 160,000 - 20,000 =>140,000.
present value of annuity factor = [1-(1+r)^(-n)]/r
=>[1-(1.11)^(-5)]/0.11
=>3.69589727.
present value factor for 5th year @11%
=>1/(1.11)^5
=>0.59345133.
year | cash flow | discounting factor | cash flow * discounting factor |
0 | (100,000) | 1 | (100,000) |
1-5 | 140,000 | 3.69589727 (present value of annuity factor) | 517,425.618 |
5 | 30,000 | 0.59345133 | 17,803.54 |
NPV | 435,229 |
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