A project generates the following sequence of cash flows over two years: Assume that cash flows after the second year grow at 2% annually in perpetuity,and the discount rate is 12%.What is the NPV of the project?

Question

A project generates the following sequence of cash flows over two years:  Assume that cash flows after the second year grow at 2% annually in perpetuity,and the discount rate is 12%.What is the NPV of the project?

Quizplus · Accepted Answer

The terminal value of the project at year 2 is: 10*1.02/(.12 - .02)= 102 NPV = -40 + 8/1.12 + (10+102)/1.12² = 56.4

A Project Generates the Following Sequence of Cash Flows Over