Question

A project will produce cash inflows of $2,800 per year for 4 years with a final cash flow of $5,700 in year 5. the project's initial cost is $9,500. what is the net present value of this project if the required rate of return is 15 percent?

Answer 1

Net Present Value is equal to the Present Value of the future cash flows - Initial Investment. The Present Value of the cash flows is discounted at an interest rate 15% (in the above question).

Present Value of the cash Flows = Cash flow in Year 1 ÷ (1 + r ) ^n

where r = 15%

n = number of years.

The Net Present Value is $1,328