Sorenson Stores is considering a project that has the following cash flows: Year     Cash Flow 0         CF0 = ?  1         $2,000 2          3,000 3          3,000 4          1,500 The project has a payback of 2.5 years, and the firm’s cost of capital is 12%. What is the project’s NPV? Hint: Find out CF0 first.

Question

Sorenson Stores is considering a project that has the following cash flows:

Year     Cash Flow
0         CF0 = ? 
1         $2,000
2          3,000
3          3,000
4          1,500

The project has a payback of 2.5 years, and the firm’s cost of capital is 12%. What is the project’s NPV? Hint: Find out CF0 first.

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Capital budgeting decisions

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