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Homework answers / question archive / NPV and EVA A project cost $2
NPV and EVA A project cost $2.3 million up front and will generate cash flows in perpetuity of $200,000. The firm's cost of capital is 8%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA. a. The project's NPV is $0. (Round to the nearest dollar.) b. The annual project EVA in a typical year is $0. (Round to the nearest dollar) c. The overall project EVA is $D. (Round to the nearest dollar)
A.Computation of Project's NPV:
Present Value of Future Cash Flows = Cash Flows / Cost of Capital
= $200,000/8%
= $2,500,000
Inital Investment = $2,300,000
Project's NPV = Present Value of Future Cash Flows - Initial Investment
= $2,500,000 - $2,300,000
Project's NPV = $200,000
b. Computation of Annual Project EVA in a Typical Year:
Annual Project EVA = NOPAT - (Initial Investment*Cost of Capital)
= $200,000 - ($2,300,000 * 8%)
= $200,000 -$184,000
Annual Project EVA = $16,000
C. Computation of Overall Project EVA:
Overall Project EVA = $16,000/8% = $200,000
