Question

Consider a project that requires an initial investment of $96,000 and will produce a single cash flow of $151,000 in 4 years. What is the NPV of this project if the 4-year interest rate is 4.9% (EAR)?

Answer 1

The NPV of the project is $113,018.41.

Step-by-step explanation:

To calculate the net present value (NPV) of the project, you need to discount the future cash flow to its present value using the given interest rate. The formula for NPV is:

NPV = Cash Flow / (1 + r)^n

In this case, the initial investment is -$96,000 (negative because it's an outflow of cash), the cash flow is $151,000, the interest rate is 4.9%, and the time period is 4 years. Plugging these values into the formula, we get:

NPV = 151000 / (1 + 0.049)^4 = $113,018.41

Therefore, the NPV of this project is $113,018.41.