Your city is considering a number of different projects to prevent flooding. You

Question

Your city is considering a number of different projects to prevent flooding. You are tasked with assessing the NPV of a green project, which is the alternative to building a dam (a 100-year solution). The initial cost of the green project is $10 million, and will provide $2 million in benefits each year for the next twelve years. Using a discount rate of 5.9%, what is the equivalent annual net present value (EANPV) of this 12-year project? (Answers in dollars, remember to convert from millions. Round to two decimal places.)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

NPV = -10000000 + 2000000/(1+5.9%)^1 + 2000000/(1+5.9%)^2 + 2000000/(1+5.9%)^3 + 2000000/(1+5.9%)^4 + 2000000/(1+5.9%)^5 + 2000000/(1+5.9%)^6 + 2000000/(1+5.9%)^7 + 2000000/(1+5.9%)^8 + 2000000/(1+5.9%)^9 + 2000000/(1+5.9%)^10 + 2000000/(1+5.9%)^11 + 2000000/(1+5.9%)^12 = $6859997.16

Equivalent annual net present value = NPV/PVIFA(12 Years, 5.9%) = 6859997.16/8.4300 = $813760.04

Answer is $813760.04

Thanks.

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