Question

a project will produce cash inflows of 5400 a year for 3 years with a final cash inflow of 2400 in year 4. The projects initial cost is 13400. what is the net present value if the required rate of return is 14.2 percent?

Answer 1

NPV = $505.9242271 rounded off to $505.92

Step-by-step explanation:

The NPV or net present value is an important metric that is used for project and investment evaluation. The NPV is the present value of the series of cash flows provided by the project less the initial cost incurred to undertake the project. NPV can be calculated as follows,

NPV = CF1 / (1+r) + CF2 / (1+r)^2 + .... + CFn / (1+r)^n - Initial cost

Where,

• CF1, CF2 and so on represents the cash flow in year 1 , cash flow in year 2 and so on
• r represents the required rate of return

NPV = 5400 / (1+0.142) + 5400 / (1+0.142)^2 + 5400/ (1+0.142)^3 +

2400 / (1+0.142)^4 - 13400

NPV = $505.9242271 rounded off to $505.92