Question

A company has determined that a certain project will produce revenue of $14 million 1 year from now. The costs are projected to equal $5 million each 2, 3 and 4 years from now. Given a cost of capital of 10%, the Net Present Value of the project equals:

Answer 1

$1.42 million

Step-by-step explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 1 = $14 million

Cash flow in year 2,3,4 = $-5 million

I = 10%

NPV = $1.42 million

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute