Question

Project L requires an initial outlay at t = 0 of $65,000, its expected cash inflows are $14,000 per year for 9 years, and its WACC is 10%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

To calculate the NPV of the project, we need to find the present value of all the expected cash inflows and subtract the initial outlay. Using the formula:

NPV = -Initial Outlay + PV of Cash Inflows

We can plug in the given values:

NPV = -$65,000 + $14,000/(1+0.10)^1 + $14,000/(1+0.10)^2 + ... + $14,000/(1+0.10)^9

NPV = -$65,000 + $14,000/(1.10)^1 + $14,000/(1.10)^2 + ... + $14,000/(1.10)^9

NPV = -$65,000 + $14,000(4.355 + 3.969 + ... + 1.315)

NPV = -$65,000 + $14,000(26.034)

NPV = -$65,000 + $364,476

NPV = $299,476.34

Therefore, the project's NPV is $299,476.34.