Managers of CVS Pharmacy are considering a new project. This project would be a
ID: 2619345 • Letter: M
Question
Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted.
Year 0: ($1,250,000)
Year 1: $200,000
Year 2: $500,000
Year 3: $400,000
Year 4: $300,000
Year 5: $200,000
Suppose that the appropriate discount rate for this project is 5.2%, compounded annually.
Calculate the net present value for this proposed project.
Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. If the NPV is negative, include a minus sign. Do not type the $ symbol.
Explanation / Answer
Statement of NPV Computation
Years
Cash flows
PVF@5.2%
PV
[1]
[2]
[3]
[4]=[2 x3]
0
(1,250,000)
1
(1,250,000)
1
200,000
0.95057
190,114
2
500,000
0.90358
451,790
3
400,000
0.85892
343,568
4
300,000
0.81646
244,938
5
200,000
0.77611
155,222
NPV
135,632
Therefore, NPV of the project =135,631
Explanation:
Net Present Value (NPV) = PV of Expected Cash Inflows – Initial cash outflow i.e at Year 0
PV =Present Value
PVF =Present Value Factor = 1/(1+r)n
r = Discounting rate = =5.2%=0.052
Years
Cash flows
PVF@5.2%
PV
[1]
[2]
[3]
[4]=[2 x3]
0
(1,250,000)
1
(1,250,000)
1
200,000
0.95057
190,114
2
500,000
0.90358
451,790
3
400,000
0.85892
343,568
4
300,000
0.81646
244,938
5
200,000
0.77611
155,222
NPV
135,632
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.