What is the Net Present Value (NPV) of an investment project with an initial cost of $6 million and positive cash flows of $1.6 million at the end of the year 1, $2.4 million at the end of year 2, and $2.8 million at the end of year 3. Use 10% as the discount rate.© BrainMass Inc. brainmass.com October 25, 2018, 9:42 am ad1c9bdddf
The solution includes both the definition of net present value and a calculation of the net present value (NPV) of an investment project.
Project Net Present Value (NPV) Calculation
Lugar Industries is considering an investment in a proposed project which requires an initial expenditure of $100,000 at t = 0. This expenditure can be depreciated at the following annual rates:
Year Depreciation Rate
The project has an economic life of six years. The project's revenues are forecasted to be $90,000 a year. The project's operating costs (not including depreciation) are forecasted to be $50,000 a year. After six years, the project's estimated salvage value is $10,000. The company's WACC is 10 percent, and its corporate tax rate is 40 percent. What is the project's net present value (NPV)?