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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

NPV Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the project’s NPV?

Summary Introduction

To calculate: The project’s net present value.

Introduction:

Net Present Value (NPV):

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

Explanation

Given information:

Cost of the project is $65,000.

Life of project is 9 years.

Cash inflow from project per year is $12,000.

The project’s cost of capital is 9% or 0.09.

The formula to calculate net present value is,

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

Where,

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

Substitute $12,000 for cash flow, 0

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