Question

A company must decide if a proposed project is financially justifiable. To help make this decision, the company just spent $8 million dollars. If the company goes ahead with this project, it must immediately spend another $150 million now, and then spend $30 million in one year. In two years, it will receive $90 million, and in three years it will receive $110 million. If the cost of capital for the project is 11%:

The project's NPV is:

A) -$32,082

B) -$23,550

C) $10,085

Answer 1

B.) -$23.550.

present value factor = 1 /(1+r)^n

here, r = 11%%=>0.11.

n= 0,1,2,3.

year	cash flow	present value factor (1/(1.11))	cash flow * present value factor
0	(150)	1	(150)
1	(30)	1/(1.11)^1=>0.9009	(30*0.9009)=>(27.027)
2	90	1/(1.11)^2=>0.8116	90*0.8116=>73.044
3	110	1/(1.11)^3=>0.7312	110*0.7312=>80.432
		NPV	(23.551) i.e approximately (23.550)