Question

What is the net present value of a project that has an initial cash outflow of $-12,800, at time 0, and the following cash flows for years 1-4? The required return is 10.0%

Year     Cash Flows

1          $4,200

2          $4,450

3          $4,500

4          $6,550

Answer 1

The calculation of NPV of project is shown below:
NPV = Present value of cash inflows - Initial outlay

= (CF1 * PVF@10%, 4 years) + (CF2 * PVF@10%, 4 years) + (CF3 * PVF@10%, 4 years) + (CF4 * PVF@10%, 4 years) - initial outlay

= ($4,200*0.9091) + ($4,450 * 0.8264) + ($4,500 * 0.7513) + ($6,550 * 0.6830) - $12,800

= $3,818.22 + $3,677.48 + $3,380.85 + $4,473.65 - $12,800

=$2,550.2