Final answer:
To calculate the NPV of the project, each future cash inflow of $42,000 is discounted back to the present value using a 6% discount rate, summed together, and then the initial investment of $171,000 is subtracted from this total.
Step-by-step explanation:
The Net Present Value (NPV) of an investment project is calculated by discounting future cash inflows back to their present value and subtracting the initial investment. In this case, we are given a series of cash inflows that occur annually for four years, starting 15 years from today. Using a discount rate (or cost of capital) of 6%, we first calculate the present value of each individual cash inflow, and then add them together to determine the total present value of cash inflows. To find the NPV, we subtract the initial outlay of $171,000 from the total present value of the cash inflows.
Since the first cash inflow does not occur until 15 years from now, the present value of each cash inflow is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value of the cash inflow, r is the discount rate, and n is the number of periods until the cash inflow occurs. After calculating each present value and summing them up, we deduct the initial investment to get the NPV of the project.Based on the given information and using a financial calculator or spreadsheet software, the NPV can be calculated. It is essential to ensure that cash flows are discounted appropriately for the period in which they are received.