Question

considering remodeling the office building. The costs are estimated at $2.8 million. After the building is remodeled, Delta expects an additional income of $820,000/year for the next 5 years. The discount rate is 12.5%. What is the benefit of the project to Delta LLC, in today's $ value

Answer 1

the benefit of carrying out the project is $119,666 in today's $

Step-by-step explanation:

initial outlay = -$2,800,000

cash flow 1 = $820,000

cash flow 2 = $820,000

cash flow 3 = $820,000

cash flow 4 = $820,000

cash flow 5 = $820,000

discount rate = 12.5%

NPV = -$2,800,000 + $820,000/1.125 + $820,000/1.125² + $820,000/1.125³ + $820,000/1.125⁴ + $820,000/1.125⁵ = $119,666