Ryngaert Medical Enterprises is considering a project that hasthe following cash

Question

Ryngaert Medical Enterprises is considering a project that hasthe following cash flow and WACC data. What is the project'sNPV? Note that a project's projected NPV can be negative, in whichcase it will be rejected.

                       WACC = 10%

                       Year:                  0                        1                    2                    3                    4        

                       Cash flows:      -$1,000           $400               $405               $410               $415

Explanation / Answer

Year

Cashflows

PV factor at 10%

Present Values

Net Present Value

[OR]

Calculating NetPresent Value(NPV):

Year

Cashflows

PV factor at 10%

Present Values

0 ($1,000) 1 ($1,000) 1 $400 0.9091 $363.63 2 $405 0.8264 $334.70 3 $410 0.7513 $308.03 4 $415 0.6830 $283.45

Net Present Value

$289.83

[OR]

NPV = [$400 / (1.1) +$405 / (1.1)2 + $410 / (1.1)3 + $415 /(1.1)4] - $1,000 NPV = [$363.63 + $334.71+ $308.04 + $283.45] - $1,000 NPV = $289.84

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