Question

A project’s cash flows are as follows:

Year 0: outflow 1500

Year 1: outflow 2400

Year 2: 0

Year 3: inflow 300

after year 3, year 3 cash flow is expected to grow indefinately at an annual rate of 5 percent.

cost of capitol is 10 percent. what is the projects npv.

any suggestion on how to do in excel would be great with formulas. thank you.

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

PV of future Cash flows at the end of Year 3  = CF 4 / ( Ke - g)

where Ke is cost of Capital and g is growth Rate

= 300 * 1.05 / ( 10% - 5% )

=315 / 5%

= 6300

Pls comment, if any further assistance is required