Suppose a project is expected to generate annual cash flow of $164488 next year

Question

Suppose a project is expected to generate annual cash flow of $164488 next year and subsequent (annual) cash flows are expected to grow at 2.7 percent annually forever. If project costs $60,000 and the cost of capital is 15.5 percent, calculate the net present value of the project. Answer: Check $164374 x1.25 next year, S 164374x 1.25x125 (Le. 164374 × 1.25 Suppose a project is expected to generate annual cash flow of squared) the year after, and the subsequent (annual) cash flows are expected to grow at 2.7 percent annually.forever.If project costs $560,000 and the cost of capital is 15.7 percent, calculate the net present value of the project Answer

Explanation / Answer

Answer: Answering the first question. please put the second question separately to get it answered

To calculate the present value of growing perpetuity. Formula used is

D1/r-g

D1(annual cash flow) = $164488

r( cost of capital ) = 15.5%

g( growth rate) = 2.7%

PV of this growing perpetuity = 164488/(0.155-0.027) = $1285063

Net present value = PV of cash inflows - project cost outflow

NPV = 1285063 - 560000

NPV = $725062.5

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