LeoVinci Gallery Ltd owns a building in North Sydney that houses their fine arts business.At present the gallery leases out the ground floor of the building to Young Artists Trust for a rental income of $4,800 per month.However,Sir Michael Rose,the curator of the gallery would like to expand the galleries bustling fine arts auction business by taking over the ground floor and running an additional auction house.This would necessitate terminating Young Artist Trust's lease and would incur an immediate penalty of $10,000.Sir Michael has estimated the initial outlay setting up the ground floor auction house will be $150,000 and that it will yield a cash flow of $9,600 per month for the next four years.At that time they will review the project.If LeoVinci has a required return of 1% per month,what is the NPV of the project?

Question

Quizplus · Accepted Answer

The NPV of the project is $22,275.01. This is calculated by taking the present value of the cash flows over the next four years and subtracting the initial outlay. The present value of the cash flows is $234,825.01, and the initial outlay is $150,000.

LeoVinci Gallery Ltd Owns a Building in North Sydney That