Question

Project L costs $35,000, its expected cash inflows are $12,000 per year for 7 years, and its WACC is 9%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Answer:

  $25,395.43

Step-by-step explanation:

We assume the cash inflows are effectively at the end of the year, so the NPV will be ...

  NPV = 12,000/1.09 + 12,000/1.09² + ... + 12,000/1.09⁷

  = (12,000/1.09)(1.09^(-7)-1)/(1.09^-1 -1) = 60,395.43 . . . sum of geometric series

Since the cash outflow is assumed to be immediate, it subtracts from the inflow value to give ...

  NPV = $60,395.43 -35,000

  NPV = $25,395.43