Question

SAP Inc. received a $1.5 million grant under its Small Business Innovation program. SAP invested the grant money and developed a system to remove metal contaminants from storm water in shipyards. The firm estimates that each shipyard spends $500,000 a year on storm water clean-up efforts. If SAP is able to sign up and retain four shipyards in the first year onwards, what is the present value (PV) of the project (net of investment) if the cost of capital for SAP is 14% per year

Answer 1

Answer: $12,785,714

Step-by-step explanation:

Present value of project:

= Revenue / Cost of capital

= (500,000 * 4 shipyards) / 14%

= $14,285,714

Net of investment:

= 14,285,714 - 1,500,000

= $12,785,714