question archive Holiday Express is considering a 5-year project with an initial cost of $87,000
Subject:FinancePrice:2.87 Bought7
Holiday Express is considering a 5-year project with an initial cost of $87,000. The project will produce cash inflows of $24,800 a year over the life of the project. What is the net present value if the required rate of return is 14.2 percent?
Answer:
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=24800[1-(1.142)^-5]/0.142
=24800*3.416643103
=84732.75
NPV=Present value of inflows-Present value of outflows
=84732.75-$87000
=($2267.25)(Approx)(Negative).