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13 April, 05:48

Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent. What is the net present value of this project

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  1. 13 April, 09:43
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    The net present value of this project is $13,587,962.96

    Explanation:

    The Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows from a decision. A positive NPV indicates a profitable investment and a negative the opposite.

    We can be work out the NPV of Turnbull Corp as follows

    Present Value

    Year 1 13000,000 * * (1.2^ (-1) = 10,833,333.3

    Year 2 23,000,000 * 1.2^ (-2) = 15,972,222.22

    Year 3 29,000,000 * 1.2^ (-3) = 16,782,407.41

    Total PV of cash inflows 43,587,963.0

    Less the PV of cash outflow (30,000,000)

    Net Present Value (NPV) 13,587,962.96

    The net present value of this project is $13,587,962.96
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Home » Business » Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent.
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