Value of discounted revenues minus discounted costs to be $200M A study that loo
ID: 2709590 • Letter: V
Question
Value of discounted revenues minus discounted costs to be $200M
A study that looked at the viability of the project has already been completed at a cost of $3M.
Initial Investment of $70M for the plant and $11M net working capital (NWC).
The discount rate for the form is 8.0 for all cash flows ( net cash flows from projects, recovered NWC, salvage)
Assume that both expenses and revenues for a year occur at the end of the year. Net Working Capital pays the bills during the year but has to be replenished at the end of the year.
At the end of the 10th year, the plant will be scrapped for a salvage value of $20 million and the NWC equal to $11 will also be recovered.
What is the NPV of the project? (Give answer in millions)
Explanation / Answer
Net present value = Present value of cash inflows-Present value of cash outflows
= $200 million+($11 million+$20 million)×[1÷(1+8%)^10]-($70 million+$11 million)
= $133.36 million
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