Consider a ten-year project that costs $40,000 today, which is expected to generate $6,000 at the end of the second year and then the cash flows will increase by $1,000 for three years and then stagnate for the rest of the project life.The cost of capital is 8%.What is the project's NPV?

Question

Quizplus · Accepted Answer

The project's NPV is calculated by discounting each cash flow back to the present value using the cost of capital (8%) and summing them up, then subtracting the initial investment. The cash flows are $6,000 at year 2, $7,000 at year 3, $8,000 at year 4, $9,000 at year 5, and $9,000 from year 6 to year 10. The correct NPV is $7,162.69.

Consider a Ten-Year Project That Costs $40,000 Today, Which Is