QUESTION 7 Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Flow Cash Flow
ID: 2762357 • Letter: Q
Question
QUESTION 7
Project
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Flow
Cash Flow
Cash Flow
Cash Flow
Cash Flow
Cash Flow
A
-14000
6000
6000
6000
6000
6000
B
-15000
7000
7000
7000
7000
7000
C
-18000
12000
2000
2000
2000
2000
The cash flows for three projects are shown above. The cost of capital is 9.5%. The net present value (NPV) of project A is ________.
Project
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Flow
Cash Flow
Cash Flow
Cash Flow
Cash Flow
Cash Flow
A
-14000
6000
6000
6000
6000
6000
B
-15000
7000
7000
7000
7000
7000
C
-18000
12000
2000
2000
2000
2000
Explanation / Answer
Project A:
Year
Cashflow
Pv Factor @ 9.5%
PV
0
(14,000)
1.0000
(14,000)
1
6,000
0.9132
5,479
2
6,000
0.8340
5,004
3
6,000
0.7617
4,570
4
6,000
0.6956
4,173
5
6,000
0.6352
3,811
NPV
9,038
Project B:
Year
Cashflow
Pv Factor @ 9.5%
PV
0
(15,000)
1.0000
(15,000)
1
7,000
0.9132
6,393
2
7,000
0.8340
5,838
3
7,000
0.7617
5,332
4
7,000
0.6956
4,869
5
7,000
0.6352
4,447
NPV
11,878
Project C:
Year
Cashflow
Pv Factor @ 9.5%
PV
0
(18,000)
1.0000
(18,000)
1
12,000
0.9132
10,959
2
2,000
0.8340
1,668
3
2,000
0.7617
1,523
4
2,000
0.6956
1,391
5
2,000
0.6352
1,270
NPV
(1,188)
Year
Cashflow
Pv Factor @ 9.5%
PV
0
(14,000)
1.0000
(14,000)
1
6,000
0.9132
5,479
2
6,000
0.8340
5,004
3
6,000
0.7617
4,570
4
6,000
0.6956
4,173
5
6,000
0.6352
3,811
NPV
9,038
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