A number of companies, including Litchfield Design and Oxygen Optimization, are

Question

A number of companies, including Litchfield Design and Oxygen Optimization, are considering undertaking project A, which is believed by all to have a level of risk that is equal to that of the average-risk project at Litchfield Design. Project A is a project that would require an initial investment of 4,579 dollars and then produce an expected cash flow of 8,753 dollars in 5 years. Project A has an internal rate of return of 13.835 percent. The weighted-average cost of capital for Litchfield Design is 11.2 percent and the weighted-average cost of capital for Oxygen Optimization is 12.64 percent. What is the NPV that Oxygen Optimization would compute for project A?

Explanation / Answer

Therefore the net present value that the oxygen would compute would be at internal rate of return discounting and it is 1454 is the net present value

Oxygen optimization Years Cash flows Discount factor 12.64% present value 0 -4579 1 -4579 1 1750.6 0.888 1554.15483 2 1750.6 0.788 1379.753932 3 1750.6 0.700 1224.923591 4 1750.6 0.621 1087.467676 5 1750.6 0.551 965.4365024 Net present value 1632.736531

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