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Homework answers / question archive / A project has an initial cost of $55,000, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 14%
A project has an initial cost of $55,000, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 14%. What is the project's NPV?
Initial Cost = $55,000 | Expected Net Cash inflows each year = $14,000 | Time of the project = 7 years
Cost of Capital = 14%
We know, NPV of the project = Present Value of all cash inflows - Initial cost
Using Annuity, we can calculate the PV of all cash inflows.
PV of all cash inflows = (Net Cash inflow / Cost of capital) * (1 - (1 + Cost of capital)-T)
Putting values, PV of all cash inflows = (14,000 / 14%) * (1 - (1 + 14%)-7) = 100,000 * 0.600363
PV of all cash inflows = $60,036.27
Putting PV of all cash inflows in NPV expression, NPV of the project = 60,036.27 - 55,000
Hence, NPV of the project = $5,036.27
