Answered: Suppose a project has the following…

Suppose a project has the following cash flows. What is the NPV if the cost of the project is $105,000 and the required return is 9.75%? Year Cash Flow $28,000 2 32,000 3 36,000 4 39,000

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section10.6: Profitability Index (pi)

Problem 2ST

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Suppose a project has the following cash flows. What is the NPV if the cost of the
project is $105,000 and the required return is 9.75%?
Year
Cash Flow
$28.000
32,000
3
36,000
4
39,000
O$6,000
O $20,678
$1,193
$27,335
O $30,000
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