A firm has an opportunity to invest in a project that will generate $55,000 per year for the next 10 years and requires an initial investment of $300,000.The firm will need to raise equity to pay for the project.If the firm's discount rate is 11%, should they invest in this project?

Question

Quizplus · Accepted Answer

To calculate the NPV of the project, we need to discount each year's cash flows to their present value, sum them up, and subtract the initial investment of $300,000. Using a financial calculator or spreadsheet, the NPV is approximately $23,908. Since the NPV is positive, the project is expected to generate returns greater than the required rate of return (discount rate of 11%) and the firm should invest in it.

A Firm Has an Opportunity to Invest in a Project