Question
Asked Nov 7, 2019
81 views

 

Living Colour Co. has a project available with the following cash flows:
 

Year Cash Flow
0 −$35,070  
1 7,970  
2 9,570  
3 13,560  
4 15,610  
5 10,340  
 

 
If the required return for the project is 7.9 percent, what is the project's NPV?

 

 
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Expert Answer

Step 1

Net present worth of a project can be calculated by considering the present value of cashflows. Cashflows includes inflow and outflows both.

Step 2

Given:

Internal rate of return = 7.9%

Initial cost = $35,070

Cashflows from year 1 to year 5 =$7970, $9570, $13560, $15,610, and $10,340.

Step 3

Formula to calcula...

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Cash inflow Cash inflow Cash inflow Initial cashflow +- NPV (1+r) (1+r) (1+r) $7,970 $9,570 + $10,340 -S35,707 (1+.079) (1+.079) (1+.079) $7386.76+ $8221.64 +$10,796.17 =-$35,707 +$11,520.29+$7,072.50 = $9,927.10

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