What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in year 1, $6,980 in year 3, and $2,750 in year 4? the discount rate is 12.5 percent?

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Business

Armando Sweeney

1 June, 10:10

What is the net present value of a project that has an initial cash outflow of $7,670 and cash inflows of $1,280 in year 1, $6,980 in year 3, and $2,750 in year 4? the discount rate is 12.5 percent?

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Keyon Underwood · Answer 1

Net present value is the present value of future cash inflows discounted at the expected rate of return minus the initial investment.

Initial cash outflow = $7670

Cash inflow during Year 1 = $1280

Cash inflow during Year 2 = $0

Cash inflow during Year 3 = $6980

Cash inflow during Year 4 = $2750

Discount rate = 12.5%

NPV = (1280/1.125^1) + (0) + (6980/1.125^3) + (2750/1.125^4) - 7670

NPV = (1280/1.125) + 0 + (6980/1.424) + (2750/1.6) - 7670

NPV = 1137.778+0+4902.277+1716.811-7670

NPV=86.86