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You are interested in an investment where the initial investment is $121,000 and your required cost...

You are interested in an investment where the initial investment is $121,000 and your required cost of capital is 12 percent. Cash inflows from this project are expected to be $11,900 at the end of the first year and are expected to grow at 4 percent a year thereafter. Compute the NPV. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

NPV $

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Answer #1

Answer : $27,750

NPV=Pv of inflows -Initial outflow

Initial Outflow =$121,000

Here we have a growing perpetuity.

The PV of a growing perpetuity =inflow /Discount rate -growth rate

Here the inflow =$11,900

The discount rate =12%

The grwth rate =4%

So he PV of inflows =$11900/.12-.04 =$148,750

So the NPV =$148,750-$121,000=$27,750

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