Question

Net

present value Using a cost of capital of 10%, calculate the net
present value for the project shown in the following table and
indicate whether it is acceptable , The net present value (NPV ) of
t
\begin{tabular}{cc} \hline Initial investment \( \left(C F_{0}\right) \) & \( -1,142,000 \) \\ \hline Year \( (t) \) & Cash inflows \( \left(C F_{t}\right) \) \\ \hline 1 & \( \$ 82,000 \) \\ 2 & \( \

Answer 1

To calculate the net present value (NPV) of the project, we need to discount the cash inflows to their present value using the cost of capital and subtract the initial investment. In this case, the NPV is $1,290,925.62, indicating that the project is acceptable.

Step-by-step explanation:

To calculate the net present value (NPV) of the project, we need to discount the cash inflows to their present value using the cost of capital.

The formula for calculating the present value (PV) is: PV = CF / (1+r)^t, where CF is the cash inflow, r is the discount rate, and t is the time period.

Using the given numbers:

• Initial investment (CF0) = -$1,142,000
• Cash inflow at year 1 (CF1) = $82,000
• Cash inflow at year 2 (CF2) = $89,000

Applying the formula, the present value (PV) at Year 1 is:

PV1 = $82,000 / (1+ 0.10)^1 = $74,545.45

The present value (PV) at Year 2 is:

PV2 = $89,000 / (1+ 0.10)^2 = $74,380.17

To calculate the net present value (NPV), we subtract the initial investment from the sum of the present values:

NPV = PV1 + PV2 - CF0 = $74,545.45 + $74,380.17 - -$1,142,000 = $74,545.45 + $74,380.17 + $1,142,000 = $1,290,925.62

Since the NPV is positive, the project is acceptable.