question archive Suppose a project costs $222,000 at start up, generates a cash flows of $560,000 in year one, and costs $350,000 in year 2
Suppose a project costs $222,000 at start up, generates a cash flows of $560,000 in year one, and costs $350,000 in year 2
Subject:FinancePrice:2.87 Bought7
Suppose a project costs $222,000 at start up, generates a cash flows of $560,000 in year one, and costs $350,000 in year 2. There are no cash flows after year 2.
What is the NPV of the project at 25 percent required rate of return?
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Answer:
NPV is computed as shown below:
= - Initial cost + Future value / (1 + interest rate)time period
= - $ 222,000 + $ 560,000 / 1.25 - $ 350,000 / 1.252
= - $ 222,000 + $ 448,000 - $ 224,000
= $ 2,000
