Project X requires an initial outlay of $10,000 and has the following cash flow

Finance Dec 23, 2020

Project X requires an initial outlay of $10,000 and has the following cash flow. What is the NPV of this project assuming a required rate of return of 12%?

Cash Flow Year 1 = $4,000

Cash Flow Year 2 = $ 5,000

Cash Flow Year 3 = $ - 6,000

Cash Flow Year 4 = $ 3,000

Cash Flow Year 5 = $ 6,000

Expert Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=4000/1.12+5000/1.12^2+3000/1.12^4+6000/1.12^5

=12868.51

Present value of outflows=10,000+6000/1.12^3

=14270.68

NPV=Present value of inflows-Present value of outflows

=12868.51-14270.68

=-1402.17(Approx)(Negative)

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