Turnbull Company is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent. Net present value: What is the net present value of this project? (Round to the nearest million dollars.)

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the project, we need to discount the expected cash flows at the cost of capital (20%) and subtract the initial investment ($30 million).

NPV = -30 + (13/1.20) + (23/1.20^2) + (29/1.20^3)
NPV = -30 + 9.09 + 15.67 + 18.99
NPV = $13.76 million

Since the NPV is positive ($13.76 million), this project is expected to generate more cash flows than the cost of capital and is therefore a good investment. Among the answer choices, the closest value to the calculated NPV is C ($14 million).

Turnbull Company Is in the Process of Constructing a New