Question

Bevans corporation is considering a capital budgeting project that would require an initial investment of $190,000. the investment would generate annual cash inflows of $58,000 for the life of the project, which is 4 years. the company's discount rate is 7%. the net present value of the project is closest to:

Answer 1

The Net Present Value of the project is closest to $ 6,258.25.

We calculate the Net Present Value or NPV by using the following formula:

NPV = (-Investment) + Present Value of Future Cash Flows from the Project.

The initial investment is $190,000.

Since the project generates cash inflows of $58,000 each year for four years, and the discount rate is 7%, we can substitute the values in the formula above as follows:

NPV = (-$190,000) + ($58,000/1.07)+ ($58,000/(1.07²))+($58,000/(1.07³))+ ($58,000/(1.07^4))

NPV = -$190,000+ 54205.60748 +50659.44624 + 47345.27686 +44247.9223

NPV = -$190,000 + 196458.2529

NPV = 6458.2529