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Homework answers / question archive / Question Help NPV for varying costs of capital LePew Cosmetics is evaluating a new fragrance-mixing machine
Question Help NPV for varying costs of capital LePew Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $380,000 and will generate after-tax cash inflows of $61,850 per year for 8 years. If the cost of capital is 12%, calculate the net present value (NPV) and indicate whether to accept or reject the machine. The NPV of the project is $ 135413. (Round to the nearest cent.)
Net present value of the project will be calculated using following formula-
(Cash flows/(1+r)^n
= (-380000)+(61850 for 8 years at the rate 12%)
= (-380000+307248.52)
= -72,751.48
THE PROJECT SHOULD BE REJECTED because net present value is negative.
