Question

What is the net present value of a project that has an initial cash outflow of $-9,700, at time 0, and the following cash flows for years 1-4? The required return is 10.0%. Enter answer to the nearest dollar.

   Year     Cash Flows

1          $3,300

2          $3,600

3          $4,150

4          $5,700

Answer 1

The net present value is computed as shown below:

= Initial investment + Present value of future cash flows

Present value is computed as follows:

= Future value / (1 + r)ⁿ

So, the net present value will be:

= - $ 9,700 + $ 3,300 /1.10 + $ 3,600 / 1.10² + $ 4,150 / 1.10³ + $ 5,700 / 1.10⁴

= $ 3,286 Approximately

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