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You are considering a project that will require an initial cost of $6,000. Revenues for the...

You are considering a project that will require an initial cost of $6,000. Revenues for the 5 year life of the project are expected to be $5,000 each year and costs (including taxes) are expected to be $3,000 each year. If the WACC is 14%, what is the NPV of the project?

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Answer #1

Net cash flows each year=Revenue-Expenses

=(5000-3000)=$2000/year

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$2000[1-(1.14)^-5]/0.14

=$2000*3.433080969

=$6866.16

NPV=Present value of inflows-Present value of outflows

=$6866.16-$6000

=$866.16(Approx).

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