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Homework answers / question archive / NPV A project has an initial cost of $40,000, expected net cash inflows of $8,000 per year for 9 years, and a cost of capital of 12%
NPV A project has an initial cost of $40,000, expected net cash inflows of $8,000 per year for 9 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent. $
| Project | ||||||||||
| Discount rate | 0.12 | |||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| Cash flow stream | -40000 | 8000 | 8000 | 8000 | 8000 | 8000 | 8000 | 8000 | 8000 | 8000 |
| Discounting factor | 1 | 1.12 | 1.2544 | 1.404928 | 1.5735194 | 1.762342 | 1.973823 | 2.210681 | 2.475963 | 2.773079 |
| Discounted cash flows project | -40000 | 7142.857 | 6377.551 | 5694.242 | 5084.1446 | 4539.415 | 4053.049 | 3618.794 | 3231.066 | 2884.88 |
| NPV = Sum of discounted cash flows | ||||||||||
| NPV Project = | 2626 | |||||||||
| Where | ||||||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | |||||||||
