The cash flows associated with an investment project are as follows:

In year 4 and beyond,cash flows would continue to grow at 4 percent per year.Assume a discount rate of 10%.What is the NPV of this investment?

Question

The cash flows associated with an investment project are as follows:

In year 4 and beyond,cash flows would continue to grow at 4 percent per year.Assume a discount rate of 10%.What is the NPV of this investment?

Quizplus · Accepted Answer

As of year 3,the present value of cash flows in year 4 and beyond is PV = 540,000*1.04/(.10-.04)= 540,000/0.06 = 9,360,000 NPV = -7,000,000 + 100,000/1.1 + 200,000/1.1² + (540,000 + 9,360,000)/1.1³ = $694,215

The Cash Flows Associated with an Investment Project Are as Follows