A project is expected to create operating cash flows of $20,000 per year for thr

Question

A project is expected to create operating cash flows of $20,000 per year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $8,000 of net working capital will be required initially. The net working capital will be recovered at the end of the project. What is the project's net present value if the required rate of return is 6967 DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST DOLLAR. FOR NEGATIVE RESULTS, USE THE MINUS SIGN BEFORE THE NUMBER (e.g., -3000). Your Answer Answer

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=20000/1.06+20000/1.06^2+20000/1.06^3+8000/1.06^3

=20000[1/1.06+1/1.06^2+1/1.06^3]+8000/1.06^3

=(20000*2.673011949)+(8000*0.839619283)

=$60177.19

Present value of outflows=$50000+$8000

=$58000

NPV=Present value of inflows-Present value of outflows

=$60177.19-$58000

=$2177(Approx).

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