Your company is considering a project with the following cash flows: an immediat

Question

Your company is considering a project with the following cash flows: an immediate investment of $105,000 and cash inflows of $30,000 for five years (starting in year one). If your discount rate for this project is 7%, what is the projects NPV?
A. $228,006 B. $18,006 C. $123,006 D. $45,000 Your company is considering a project with the following cash flows: an immediate investment of $105,000 and cash inflows of $30,000 for five years (starting in year one). If your discount rate for this project is 7%, what is the projects NPV?
A. $228,006 B. $18,006 C. $123,006 D. $45,000
A. $228,006 B. $18,006 C. $123,006 D. $45,000

Explanation / Answer

Annual cash flows for 5 year s= $30,000

Discount rate (r) = 7%

Present value of annuity = Annuity * {1-(1+r)-n}/r

Present value of annuity of annual cash inflows = $30,000*(1-1.07-5)/0.7 = $30,000*4.1002 = $123,006

Initial investment = $105,000

Net present value (NPV) = - Initial investment + Present value of cash inflows = -$105,000 + $123,006 = $18,006

Hence, Answer is B. $18,006

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