question archive A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years
A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years
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A project costing $6,200 initially should produce cash inflows of $2,860 a year for three years. After the three years, the project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300. What is the net present value of this project if the required rate of return is 11.3 percent?
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Answer:
| Year | Cash flow | PVF@11.3% | Present value |
| 0 | $ -6,200 | 1.000 | $ (6,200.00) |
| 1 | $ 2,860 | 0.898 | $ 2,569.63 |
| 2 | $ 2,860 | 0.807 | $ 2,308.74 |
| 3 | $ 2,860 | 0.725 | $ 2,074.34 |
| 4 | $ 3,300 | 0.652 | $ 2,150.47 |
| Net present value | $ 2,903.19 | ||
