question archive Question 2) Tall Trees, Inc
Question 2) Tall Trees, Inc
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Question 2)
Tall Trees, Inc. is using the net present value (NPV) when evaluating projects. You have to find the NPV for the company's project, assuming the company's cost of capital is 8.60 percent. The initial outlay for the project is $440,687. The project will produce the following after-tax cash inflows of
Year 1: 161,601
Year 2: 105,696
Year 3: 194,399
Year 4: 198,773
Round the answer to two decimal places.
Answer:
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net present value (NPV) = $92,414.06
Step-by-step explanation
Present value of cash inflows = C1/(1+R)^1 + C2/(1+R)^2 + C3/(1+R)^3 + C4/(1+R)^4
Present value of cash inflows = 161,601/1.0860^1 + 105,696/1.0860^2 + 194,399/1.0860^3 + 198,773/1.0860^4
Present value of cash inflows = $533,101.06
net present value (NPV) = Present value of cash inflows - initial outlay
net present value (NPV) = $533,101.06 - $440,687
net present value (NPV) = $92,414.06
