question archive A company is adding a new assembly line at a cost of $11 million
A company is adding a new assembly line at a cost of $11 million
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A company is adding a new assembly line at a cost of $11 million. The company expects the project to generate cash flows of $7 million, $6 million, $9 million, and $2 million over the next four years. Its cost of capital is 17.8 percent. What is the net present value of this project (in millions to three decimal places)?
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Year cashflow Discount rate Pv of cashflow
1 $ 7000000 0.849 $ 5943000
2 $ 6000000 0.721 $ 4326000
3 $9000000 0.612 $ 5508000
4 $2000000 0.519 $ 1038000
Total cashinflow=16815000.
Cashoutflow =$11000000
NPV=Cashinflow-Cashoutflow
=$16815000-$11000000=$5815000.
