Question

Suppose a company has proposed a new 5-year project. The project has an initial outlay of $228,000 and has expected cash flows of $30,000 in year 1, $46,000 in year 2, $51,000 in year 3, $64,000 in year 4, and $76,000 in year 5. The required rate of return is 17% for projects at this company. What is the net present value for this project? (Answer to the nearest dollar.)

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=30,000/1.17+46000/1.17^2+51000/1.17^3+64000/1.17^4+76000/1.17^5

=$159906

NPV=Present value of inflows-Present value of outflows

=$159906-$228000

which is equal to

=($68094)(Approx)(Negative).