The directors of PDD Limited are considering an investment in a new project. The project will cost £800,000 and will have a resale value at the end of 4 years of £200,000. Net cash inflows are expected to be £300,000 in year 1, £250,000 in year 2, £400,000 in year 3 and £50,000 in year 4. PDD Limited has a required rate of return of 12%. What is the net present value of this project?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows and the resale value at the required rate of return and subtracting the initial investment. The NPV is positive at £110,765, indicating the project is expected to generate more value than the cost.

The Directors of PDD Limited Are Considering an Investment in a New