The following details are provided by Volvox Foundry Company: $$\begin{array} { | c | r | }
\hline \text { Initial investment } & \$ 5,000,000 \
\hline \text { Discount rate } & 15 \% \
\hline \text { Yearly cash flows } & \
\hline 1 & \$ 1,256,000 \
\hline 2 & \$ 1,362,000 \
\hline 3 & \$ 2,420,000 \
\hline 4 & \$ 1,150,000 \
\hline
\end{array}$$ PV of $1:
$$\begin{array} { | c | c | c | c | }
\hline & 13 \% & 14 \% & 15 \% \
\hline 1 & 0.885 & 0.877 & 0.87 \
\hline 2 & 0.783 & 0.769 & 0.756 \
\hline 3 & 0.693 & 0.675 & 0.658 \
\hline 4 & 0.613 & 0.592 & 0.572 \
\hline
\end{array}$$ What is the NPV of the project?

Question

The following details are provided by Volvox Foundry Company: $$\begin{array} { | c | r | } 
\hline \text { Initial investment } & \$ 5,000,000 \
\hline \text { Discount rate } & 15 \% \
\hline \text { Yearly cash flows } & \
\hline 1 & \$ 1,256,000 \
\hline 2 & \$ 1,362,000 \
\hline 3 & \$ 2,420,000 \
\hline 4 & \$ 1,150,000 \
\hline
\end{array}$$ PV of $1:
$$\begin{array} { | c | c | c | c | } 
\hline & 13 \% & 14 \% & 15 \% \
\hline 1 & 0.885 & 0.877 & 0.87 \
\hline 2 & 0.783 & 0.769 & 0.756 \
\hline 3 & 0.693 & 0.675 & 0.658 \
\hline 4 & 0.613 & 0.592 & 0.572 \
\hline
\end{array}$$ What is the NPV of the project?

Quizplus · Accepted Answer

The NPV is calculated as the sum of the present values of the cash flows minus the initial investment. Using the PV factors provided, we can calculate the present value of each cash flow as follows:PV of Year 1 cash flow = $1,256,000 x 0.87 = $1,093,920PV of Year 2 cash flow = $1,362,000 x 0.756 = $1,029,192PV of Year 3 cash flow = $2,420,000 x 0.658 = $1,593,760PV of Year 4 cash flow = $1,150,000 x 0.572 = $657,800The NPV is then calculated as:NPV = $1,093,920 + $1,029,192 + $1,593,760 + $657,800 - $5,000,000 = $(627,448)

The Following Details Are Provided by Volvox Foundry Company PV of $1