Question

Assume that you are the finance manager of a limited company. You have $ 10,000 to investing a project. The life of the project is 20 years. The project will generate annual cash flows of $ 2,400 per year. What will be the net present value?

Answer 1

If the project generates a constant annual cash flow of $2,400 over 20 years, it forms an annuity. In the case of an annuity, you can use the following simplified formula for NPV:

\[ NPV = \text{Cash Flow} \times \left(1 - \frac{1}{(1 + r)^t}\right) \div r - \text{Initial Investment} \]

Given your details:
- Cash Flow (\( CF \)) = $2,400 per year
- \( r = 5\% \) or \( 0.05 \)
- \( t \) (number of years) = 20
- Initial Investment = $10,000
Ans =19909.30