What is the NPV for the following project if its cost of capital is 12 percent and its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and ($1,300,000) in year 4?
A) $(1,494,336)
B) $1,494,336
C) $158,011
D) Two of the above

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each of the cash flows to their present value using the cost of capital of 12%. Using the formula for NPV, we get:

NPV = -Initial Cost + PV of Cash Flow Year 1 + PV of Cash Flow Year 2 + PV of Cash Flow Year 3 + PV of Cash Flow Year 4

NPV = -$5,000,000 + $1,606,958 + $1,564,537 + $1,200,254 - $3,692,085

NPV = -$1,320,336

Therefore, the NPV of the project is -$1,320,336, which means the project is not profitable and should not be undertaken. Option A is the correct answer, and no other choices are correct.

What Is the NPV for the Following Project If Its