A company XYZ is considering manufacturing a product in space. The project lifet

Question

A company XYZ is considering manufacturing a product in space. The project lifetime is 10 years and has the following consecutive phases: Phase 1 (years 1 to 3): The engineering design and development requires 3 years. No production is done during this period Phase 2 (years 4 to 10): to launch the spacecraft into orbit, operate the equipme Phase 2 of the project has the following costs, all paid at the end of each year: Launch $7300000 Insurance $640000 Labor $1500000 Material $600000. The minimum attractive rate of return is i=25% If the evaluated net cash flow at the beginning of phase 2 (Year 4) is $16389600, what is the present value of the net cash flow evaluated at the beginning of the project (first year)?Enter the answer in whole dollar amount

Explanation / Answer

P.S:- For phase one the bifurcation for different years(1-3) is not given, hence all the outflow till the starting of year 3 has been discounted by the PVF of year 3.

Year Development Launch Insurance Labor Material Total PVF @ 25% Total Present Value of Outflow 1.25 1 0 0.800 0 2 0 0.640 0 3 16389600 16389600 0.512 8391475.2 4 7300000 640000 1500000 600000 10040000 0.410 4112384 5 7300000 640000 1500000 600000 10040000 0.328 3289907.2 6 7300000 640000 1500000 600000 10040000 0.262 2631925.76 7 7300000 640000 1500000 600000 10040000 0.210 2105540.608 8 7300000 640000 1500000 600000 10040000 0.168 1684432.486 9 7300000 640000 1500000 600000 10040000 0.134 1347545.989 10 7300000 640000 1500000 600000 10040000 0.107 1078036.791 24641248.03

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