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You are considering a project that requires an initial investment of $98,000 with a cost of capital of 14%. You expect the project to have a five-year life, and produce cash flows of $19,000 in year 1, $32,000 in year 2, $64,000 in year 3, $26,000 in year 4 and $10,000 in year 5. What is this project’s net present value? Group of answer choices

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Answer:

NPV= 7,076.59

Explanation:

Giving the following information:

Initial investment= $98,000

Cash flows:

Cf1= 19,000

Cf2= 32,000

Cf3= 64,000

Cf4= 26,000

Cf5= 10,000

To calculate the NPV, we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

∑[Cf/(1+i)^n]:

Cf1= 19,000/1.14= 16,666.67

Cf2= 32,000/1.14^2= 24,622.96

Cf3= 64,000/1.14^3= 43,198.18

Cf4= 26,000/1.14^4= 15,394.09

Cf5= 10,000/1.14^5= 5,193.69

∑[Cf/(1+i)^n]= 105,076.59

Now, the NPV:

NPV= -98,000 + 105,076.59

NPV= 7,076.59

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