Question

Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 7%. Use this information for the questions. Year Project A Cash Flow Project B Cash Flow 0 -$32,400 -$14,400 1 9,720 4,320 2 9,720 4,320 3 9,720 4,320 4 4,860 2,160 5 4,860 2,160 6 2,430 2,160 Calculate the net present value of project A.?

1.1.117
2.0.94
3.1.128
4.1.09
5.1.06

Answer 1

$1,900.35

Step-by-step explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

The npv can be calculated using a financial calculator:

Cash flow in year 0 = -$32,400

Cash flow in year 1 = $9720

Cash flow in year 2 = $9720

Cash flow in year 3 = $9720

Cash flow in year 4 = $ 4,860

Cash flow in year 5 = $ 4,860

Cash flow in year 6 = $2,430

I =7%

NPV = $1,900.35

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you