Question

Ashanti Goldfields, wanted to undertake a project which will costs GH 30,000 now and is expected to generate year –end cash inflows of GH 9000, GH 8000, GH 7000, GH 6000, GH5000 and GH 4000 in years 1 through 6.The opportunity cost of capital may be assumed to be 10 percent.

Answer 1

I strongly believe that NPV of the project is the requirement of this question:

NPV is -$486.82

Explanation:

The NPV is the present value of the future cash flows from year 1 through year 6 minus the initial capital investment of GH30,000

The cash flow discount factor =1/(1+r)^n

r is the opportunity cost of capital at 10%

n is the relevant year of each cash flow

NPV=-30,000+9000/(1+10%)^1+8000/(1+10%)^2+7000/(1+10%)^3+6000/(1+10%)^4+5000/(1+10%)^5+4000/(1+10%)^6=-$486.82

The project is not viable since NPV is negative