   Chapter 11, Problem 1P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

NPV Project K costs $52,125, its expected cash inflows arc$12,000 per year for 8 years, and its WACC is 12%. What is the project’s NPV?

Summary Introduction

To calculate: The project’s net present value.

Net Present Value (NPV):

It is a method under capital budgeting, which includes the calculation of net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Explanation

Given,

Cost of the project is $52,125. Life of project is 8 years. Cash inflow from project per year is$12,000.

Cost of capital of the project is 12%.

The formula to calculate net present value is,

Net Present Value=CashFlow×[1(1+r)nr]InitialInvestment

Where,

• r is cost of capital of the project.
• n is life of project in years

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