Question
Asked Jul 18, 2019
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A project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent? 

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Expert Answer

Step 1

Calculation of NPV:

 Excel spread sheet:

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A B 1Initial cost S9,500 Cash inflow for 4 years In 5th year-Final cash inflow S3,200 2 $5,700 3 4 Rate of return 16% 5 Cash flow Present value factor@16% |Present value ($9,500.00) Years 6 1.0000 0 ($9,500) $3,200 $3,200 7 1 0.8621 $2,758.62 8 2 0.7432 $2,378.12 3 $3,200 0.6407 $2,050.10 10 $3,200 4 0.5523 $1,767.33 11 0.4761 5 $5,700 $2,713.84 12 Net present value (NPV) $2,168.02 13

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Step 2

Excel workings:

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A 1 Initial cost 9500 Cash inflow for 4 years 3200 2 3 In 5th year-Final cash inflow 5700 Rate of return 0.16 4 5 Cash flow Present value factor@16% | Present value 9500 3200 3200 3200 3200 5700 Years 6 |=(1/1.16)^A7 |=(1/1.16)^A8 |=(1/1.16)^A9 |=(1/1.16)^A10 |=(1/1.16)^A11 |=(1/1.16)^A12 -B7*C7 -B8*C8 =B9*C9 =B10*C10 =B11 *C11 =B12 C12 =SUM(D7:D12) 7 0 8 1 9 2 10 3 11 4 12 5 Net present value (NPV) 13 n

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