Respuesta :
The NPV of a project expected to generate $1,000 a year for 5 years assuming a discount rate of 10% and an initial outlay of #3,250 is $540.786
What is NPV (Net Present Value)?
It is the difference between the present value of cash inflows and the present value of cash outflows over a period of time with discount rate in effect of calculating it.
Based from the question above, we need to find the NPV of a project that expected to generate $1000 / year for 5 years.
Now, let's use the Net Present Value formula
NPV = Rt / (1+i)^t
NPV = net present value
Rt = net cash flow at time t
i = discount rate = 10%
t = time of the cash flow
NPV = R1 / (1+i)^1 + R2 / (1+i)^2 + R3 / (1+i)^3 + R4 / (1+i)^4 + Rt / (1+i)^5
= -3,250 + (1,000 / (1+0.1)^1) + (1,000 / (1+0.1)^2) + (1,000 / (1+0.1)^3) + (1,000 / (1+0.1)^4) + (1,000 / (1+0.1)^5
= -3,250 + 909.091 + 826.446 + 751.315 + 683.013 + 620.921
= $540.786
Therefore, the net present value of the project is $540.786.
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