A project is expected to create operating cash flows of $28,500 a year for three

Question

A project is expected to create operating cash flows of $28,500 a year for three years. The initial cost of the fixed assets is $59,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 10 percent?

A project is expected to create operating cash flows of $28,500 a year for three years. The initial cost of the fixed assets is $59,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 10 percent?

Explanation / Answer

NPV = -59000 - 3500 + 28500/1.10 + 28500/1.10^2 + 28500/1.10^3 + 3500/1.10^3

= 11004.8

Correct option:

$11,004.88

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