The directors of DPD Limited are considering a new investment proposal. The project will require an initial investment of £300,000 and a further investment at the end of year 3 of £150,000. Net cash inflows in years 1 to 5 are expected to be £75,000, £150,000, £225,000, £300,000 and £360,000. At the end of 5 years, the project will be discontinued and the project assets will be sold for an expected £100,000. DPD Limited has a required rate of return of 9%. What is the net present value of this proposal?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the net cash inflows and the terminal value at the required rate of return and subtracting the initial and subsequent investments. The correct NPV calculation results in £464,449.

The Directors of DPD Limited Are Considering a New Investment