An investment opportunity requires an initial cash outlay of £30,000. Cash flows are expected to be as follows: Year 1 Year 2 Year 3 Year 4 (£7,000) (£2,000) £13,000 £36,000 The company’s cost of capital is 9%. Depreciation is to be charged annually on a straight line basis over the life of the project. What is the NPV of the project? a.  (£2,579) b.  £27,421 c.  £2,579 d.  (27,421)

Intermediate Financial Management (MindTap Course List)
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Author:Eugene F. Brigham, Phillip R. Daves
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Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 1P: A project has an initial cost of 40,000, expected net cash inflows of 9,000 per year for 7 years,...
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8. An investment opportunity requires an initial cash outlay of £30,000. Cash flows are expected to be as follows:

Year 1

Year 2

Year 3

Year 4

(£7,000)

(£2,000)

£13,000

£36,000

The company’s cost of capital is 9%. Depreciation is to be charged annually on a straight line basis over the life of the project.

What is the NPV of the project?

a.  (£2,579)

b.  £27,421

c.  £2,579

d.  (27,421)

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